Petition for Writ of Certiorari — Kokesh v. Sec. & Exch. Comm'n, 137 S. Ct. 1635 (2017) (No. 16-529)

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IN THE

Supreme Court of the Hnited States

CHARLES R. KOKESH,

Petitioner,

Vv.

SECURITIES AND EXCHANGE COMMISSION,

Respondent.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Tenth Circuit

PETITION FOR A WRIT OF CERTIORARI

CLINTON W. MARRS ADAM G. UNIKOWSKY

MARRS GRIEBEL LAW, LTD. Counsel of Record

1000 Gold Ave, SW ZACHARY C. SCHAUF

Albuquerque, NM 87102 JENNER & BLOCK LLP

(505) 433-3926 1099 New York Ave., NW,

clinton@marrslegal.com Suite 900

Washington, DC 20001

(202) 639-6000

aunikowsky@jenner.com

QUESTION PRESENTED

Under 28 U.S.C. § 2462, any “action, suit or proceeding

for the enforcement of any civil fine, penalty, or

forfeiture, pecuniary or otherwise, shall not be

entertained unless commenced within five years from

the date when the claim first accrued.”

The question presented is:

Does the five-year statute of limitations in 28 U.S.C.

§ 2462 apply to claims for “disgorgement”?

TABLE OF CONTENTS

oy: eae i

TT BES 6 OUEEE BOI ceccerceecscoccececesesesescensoresonrenes iv

PETITION FOR WRIT OF CERTIORARI ................. 1

cea asitensendnmuonoesoen 1

a imaeseninnonnanetnils 1

STATUTORY PROVISIONS INVOLVED .................. 1

aia daintiiniartnicaiibedncctennesenenetnceinenan 1

STATEMENT OF THE CASBE....00.0.......-cccccssssssccssccesreees 3

A. Petitioner’s Securities-Law

San cisrotnnienesctcinaiaidinabecubiibebininesscnenesss 3

SS ALE 5

C. The Tenth Circuit’s Opinion ..............000-+ 7

REASONS FOR GRANTING THE WRIT................... i)

I. THERE IS AN ACKNOWLEDGED

CIRCUIT SPLIT ON THE QUESTION

a TITITTT <icicaiceriesindntindindenianesenetscouspesenenecesseuses 9

iil

A. The Eleventh Circuit Has Held

That Section 2462 Applies to

Claims for Disgorgement. .................00:0000 9

B. The First Circuit, D.C. Circuit, and

Tenth Cireuit Have Held That

Section 2462 Does Not Apply to

Claims for Disgorgement. .................2.--+. 12

Il. THIS CASE IS WORTHY OF THIS

ee eG COE ectepthtctecnineecrceiecnahimnndind 14

A. The Question Presented Is

I iceiiireicccnaniessreccinvinicntscantenninstonses 14

B. This Court Should Resolve the

SIE TIT ccnicnicenteeceisitesnnesnendacentitennipienmuntin 19

C. This Case Is a Perfect Vehicle................. 21

Ill. THE TENTH CIRCUIT'S OPINION IS

ERE REE GE NSS ES ee aie ee 23

ot. REEDS Een: Weer se. ae ace ett ene! Y 27

Appendix A

SEC v. Kokesh, No. 15-2087, 2016 WL

4437585 (10th Cir. Aug. 23, 2016) ...........secccssssereeeees la

Appendix B

SEC v. Kokesh, No. 09-ev-1021 (D.N.M. Mar.

Sas Saat eniaseciesesisoatsosisceieicitiieiiaaeeaenceecaiaanabainianainendiabeanibidalis 20a

TABLE OF AUTHORITIES

CASES

FTC v. Bronson Partners, LLC, 654 F.3d 359

en SE oo ealennieigeninae 25

Gabelli v. SEC, 13838 S. Ct. 1216

(RARER CSRS reemcerssteater ener 1, 2, 5, 14, 18, 26

Great-West Life & Annuity Insurance Co. v.

Knudson, 534 U.S. 204 (2002) ..............0:-ccsecseeseeees 25

Luis v. United States, 136 S. Ct. 1083 (2016) ............ 21

Molina-Martinez v. United States, 136 S. Ct.

I a seesediieaniaeneeeliiateeniecidiiamiedeniiees 21

Nichols v. United States, 136 S. Ct. 1113

SITTITIEY issesssillsieseesndehebeiiiineageasdbcimeebenisideingatenieapimapicedtin 21

Ocasio v. United States, 136 8. Ct. 1423 (2016) ........ 20

Official Committee of Unsecured Creditors of

WorldCom, Inc. v. SEC, 467 F.3d 73 (2d

+ se ARES ERR ng pore tpn Boar sao eee 25

Riordan v. SEC, 627 F.3d 1230 (D.C. Cir.

ii scatei deneeiimienaneacehaibbaineer eens cient 2, 8, 13

SEC v. Amerindo Investment Advisors, 639

a a ke fk A 19

SEC v. Battoo, 158 F. Supp. 3d 676 (N.D. Il.

RRA E RSCTA STR el Meese = vee en vor acer per ence 19

SEC v. Collyard, 154 F. Supp. 3d 781 (D.

Minn. 2015), appeal docketed, No. 16-1405

(8th Cir. Feb. 17, 2016)............0... emmnseiiienaeidinn 14, 19

SEC v. Contorinis, 743 F.3d 296 (2d Cir.

Ics ssceiiie pce sititaahaininenie linia ceptiiiaieitediied dagudasiapaiaesh 15, 22, 26

SEC v. Drexel Burnham Lambert Inc., 837 F.

ema. GF GRADE: © . TID ccesescecsinsvsteccnctnninecsscscansen 15

SEC v. First Jersey Securities, Inc., 101 F.3d

I cel 15

SEC v. First Pacific Bancorp, 142 F.3d 1186

I NS ible hela al lieing 15

SEC v. Fischbach Corp., 133 F.3d 170 (2d Cir.

Ee AT AR ER SPOOLS SIO ARS SN Bee ee eer 25

SEC v. Geswein, 2 F. Supp. 3d 1074 (N.D.

I cicnctncatdiiuiciiadichGhasnapnidadadeinsnielaliaciedeeis 17

SEC v. Graham, 21 F. Supp. 3d 1300 (S.D.

A IE SE REN. Se Salis SE SPEER RU 5, 14

SEC v. Graham, 823 F.3d 1357 (11th Cir.

ll ree SRS 2,9, 10, 11, 12, 19, 23

SEC v. Johnson, 650 F.3d 710 (D.C. Cir. 2011)........ 21

SEC v. Jones, 155 F. Supp. 3d 1180 (D. Utah

ER ERTIES ERR cE a EL ERG a to BS 19

SEC v. Jones, 476 F. Supp. 2d 374 (S.D.N.Y.

ESE de ees ve ate a Re Se RPV or eee 14

SEC v. Mercury Interactive, LLC, No. C 07-

2822 JF (RS), 2009 WL 2984769 (N.D. Cal.

es. SR a icaceieinienisnenatetcteniiindieethitpdomeniniidtenaninoiniiionde 17

SEC v. Pardue, 367 F. Supp. 2d 773 (E.D. Pa.

ei asisvousisessicencierncieltecdinpeinenpianidsitachictidensianiebitiinsesiiai 15

SEC v. Quan, 817 F.3d 583 (8th Cir. 2016) ...15, 22, 25

SEC v. Rosenthal, 426 F. App’x 1 (2d Cir.

SEC v. Saltsman, No. 07-CV-4870 (NGG)

(RML), 2016 WL 4136829 (E.D.N.Y. Aug.

Tae isdadnsisteeicnidasabtneashedemaiandeailiaiveiseunbiiaamentan 14, 19

SEC v. Stoecklien, No. 15CV0532 JAH WVG,

2015 WL 6455602 (S.D. Cal. Oct. 26, 2015).......... 19

SEC »v. Strebinger, 114 F. Supp. 3d 1321 (N.D.

NIE RS SE IA OTS LS IS 19

SEC v. Tambone, 550 F.3d 106 (1st Cir.

Ran LPR LPI Re ee aS | 2, 8, 12, 13

SEC v. Tambone, 573 F.3d 54 (1st Cir. 2009) ........... 13

SEC v. Tambone, 597 F.3d 436 (1st Cir. 2010)......... 13

SEC v. Teo, 746 F.3d 90 (3d Cir. 2014) ............. ee eeeeeee 16

SEC v. Wealth Strategy Partners, LC, No.

8:14-CV-02427-T, 2015 WL 3603621 (M.D.

i ae IR IID sicccnsicicardisdlenaasiiinaiadilasanebinnaneninn 19

SEC v. Whittemore, 659 F.3d 1 (D.C. Cir.

AR ey FE ae ee ial AAR PA RE ie lint eee MRO esr 16

SEC v. Wyly, 56 F. Supp. 3d 394 (S.D.N.Y

dT ARERR ESLER, POM SRST Ee SR SOE aie eo apres 17

Taylor v. United States, 136 S. Ct. 2074 (2016)........ 21

United States v. EME Homer City

Generation, L.P., 727 F.3d 274 (8d Cir.

United States v. Ursery, 518 U.S. 267 (1996)......11, 23

Upton v. SEC, 75 F.3d 92 (2d Cir. 1996)...........::c0000 19

vii

STATUTES

Oe a ns 0 OO i iciecennnintssesindeirameccenmiseinrneientinasmntiin 21

IIS nes ninneriinidnbeaepneniinamenddannuepeaminnniion 5

Be Be ic Ue ID snniiieseiinitnnncinintutinichinneieneinsinvebeanisnbiicnnpainmunints 5

Be es OF EN iititcniocenivinntsenestnsininniaintscsintitenimmeninieiandicoagiiin 21

es III io = 5 on serlsaiataraitbainelbinniaanianeabednnieesisheianil 5

as I a iiicieahtideeisictisininidaricntceamiaicbaasnninebiinmiaiiaiia 5

8S et SO” | SRE Ce SER est Ne Geni een =r 5

Bi, ED tcancinn nicwicidecisstnicsiehipiiniennipinscnnenisaian 5

ie te EE setsitiseninscinnaicunisvnsiontinainimmmaieaneniens 21

a is Oe IE is ccainaicinstsionnicensenitonieecensiepasecipediacitnnaibbeiiedey l

ee Bis WE ehccicinscnnsshcincdanivndiniccimediguitins passim

OTHER AUTHORITIES

Brief for SEC, Gabelli v. SEC, 133 S. Ct. 1216

(2013) (No. 11-1274), 2012 WL 613633 ................. 20

Brief of SEC, Graham, SEC v. Graham, 823

F.3d 1357 (11th Cir. 2016) (No. 14-13562-

Be Br Fe ea Ge eretstterrncincineniantemnevenernnnvns 20

Richard L. Cassin, VimpelCom FCPA

disgorgement is third biggest ever, FCPA

Blog (Feb. 23, 2016, 7:28 a.m.),

http://www .fepablog.com/blog/2016/2/23/vi

mpelcom-fcepa-disgorgement-is-third-

URI - STP TIIIIES srcsececccusicvensccenewisesnssunenivenenvcsesence 17

vill

SEC, Select SEC and Market Data, Fiscal

2015, https://www.sec.gov/reportspubs/

select-sec-and-market-data/secstats

OE cnc masinsnabanesalsonteenionninns 15, 16, 17

SEC, Select SEC and Market Data, Fiscal

2011, https://www.sec.gov/reportspubs/

select-sec-and-market-data/secstats

GT SA EAS ALE Oe

U.S. Dep’t of Justice, Press Release, Siemens

AG and Three Subsidiaries Plead Guilty

to Foreign Corrupt Practices Act

Violations and Agree to Pay $450 Million

in Combined Criminal Fines (Dec. 15,

2008), https://www.justice.gov/archive/

opa/pr/2008/December/08-crm-1 105.html.........

Mary Jo White, Chair, SEC, Speech at

Sandler O’Neill Partners, L.P. Global

Exchange and Brokerage Conference:

Enhancing Our Equity Market Structure

(June 5, 2014), http://www.sec.gov/

News/Speech/Detail/Speech/13705420043 1

... 19

PETITION FOR WRIT OF CERTIORARI

Charles R. Kokesh petitions for a writ of certiorari

to review the judgment of the United States Court of

Appeals for the Tenth Circuit.

OPINIONS BELOW

The decision of the Tenth Circuit (Pet. App. la—19a)

is not yet reported in the Federal Reporter, but is

available at 2016 WL 4437585. The decision of the

District Court (Pet. App. 20a—47a) is unreported.

JURISDICTION

The judgment of the Tenth Circuit was entered on

August 23, 2016. This Court has jurisdiction pursuant

to 28 U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

28 U.S.C. § 2462 provides:

Except as otherwise provided by Act of

Congress, an action, suit or proceeding for the

enforcement of any civil fine, penalty, or

forfeiture, pecuniary or otherwise, shall not be

entertained unless commenced within five years

from the date when the claim first accrued if,

within the same period, the offender or the

property is found within the United States in

order that proper service may be made thereon.

INTRODUCTION

Under 28 U.S.C. § 2462, a five-year statute of

limitations applies to “any action, suit or proceeding for

the enforcement of any civil fine, penalty, or forfeiture.”

In Gabelli v. SEC, 133 S. Ct. 1216 (2013), this Court

held that § 2462 applies with full force to SEC claims

for money penalties, unanimously rejecting the SEC’s

request for a “discovery rule” that “would leave

defendants exposed to Government enforcement action

not only for five years after their misdeeds, but for an

additional uncertain period into the future.” /d. at

1223. The Court, however, expressly reserved the

question of whether § 2462 applies to claims for

“disgorgement.” /d. at 1220 n.1.

That question is now the subject of an

acknowledged split among the courts of appeals. The

Eleventh Circuit has held that “§ 2462’s statute of

limitations applies to disgorgement,” finding that

disgorgement is a “forfeiture” within the meaning of

the statute. SEC v. Graham, 823 F.3d 1357, 1363 (11th

Cir. 2016). By contrast, the First and D.C. Cireuits—

and, in the opinion below, the Tenth Circuit—have held

that § 2462 does not apply to actions for disgorgement.

See SEC v. Tambone, 550 F.3d 106, 148 (1st Cir. 2008);

Riordan v. SEC, 627 F.3d 1230, 1234 (D.C. Cir. 2010);

Pet. App. la—19a.

This case squarely presents the issue that has

divided the circuits. The SEC did not bring its

disgorgement claims against Petitioner until 2009, yet

the district court entered a $34.9 million disgorgement

order based on securities-law violations that occurred

as far back as 1995. Pet. App. 3a, 2la. In the Eleventh

Circuit, all the SEC’s claims that arose before 2004

would be untimely under § 2462, and the SEC has

conceded that this rule would preclude all but $5 million

of the disgorgement order against Petitioner. Pet.

App. 26a-27a. In the decision below, however, the

Tenth Circuit expressly disagreed with the Eleventh

Cireuit and followed the contrary decisions of the First

and D.C. Circuits, holding that disgorgement orders

are “not subject to § 2462.” Pet. App. 2a.

This Court should grant certiorari to resolve the

conflict. The question presented recurs frequently, and

it is important. Gabelli set a clear limitations rule for

money penalties. But today, it is uncertain whether

that limit applies to disgorgement—or whether instead,

the SEC can reach back to punish violations as far back

as it chooses to look, so long as it captions its claims

“disgorgement.” The SEC has exploited that

uncertainty. In 2015 alone, the SEC extracted $3

billion in disgorgement payments. That amount dwarfs

the SEC’s money penalties, which were just $1.2 billion,

and is also growing faster: Disgorgement collections

have jumped 60% since 2011, compared with just a

quarter increase in penalties. The SEC’s increasing

post-Gabelli reliance on disgorgement calls out for this

Court’s review to determine whether disgorgement

claims are exempt from the statute of limitations that

applied in Gabelli, as the First, Tenth, and D.C.

Circuits have held, or subject to that same limit, as the

Eleventh Circuit has concluded.

STATEMENT OF THE CASE

A. Petitioner’s Securities-Law Violations

On October 27, 2009, the SEC filed a civil

enforcement action alleging that, from 1995 through

2006, Petitioner violated federal securities laws by

misappropriating funds. Pet. App. 3a, 2la. The SEC’s

claims concerned two SEC-registered investment-

adviser firms—Technology Funding Ltd. (“TFL”) and

Technology Funding, Inc. (“TFI”)—that contracted to

provide investment advice to four SEC-registered

business-development companies (“the Funds”). Pet.

App. 2a-8a. The SEC alleged that, via TFL and TF,

Petitioner caused improper distributions to be made

from the Funds. Pet. App. 21a.

A jury found that Petitioner contravened the

securities laws, based on three violations. Pet. App.

4a-5a. First, from 1995 through 2006, Petitioner

directed the treasurer of TFL and TFI to withdraw

$23.8 million from the Funds to pay salaries and

bonuses to officers of TFL and TFI, including both

Petitioner and others. Pet. App. 3a, 22a. The contracts

did not provide for bonus payments, and the bonuses

were not reported in SEC filings. Pet. App. 3a—a.

Until 2000, the contracts also prohibited payments for

the salaries of Petitioner and other officers, and the

2000 contract amendment to permit such payments was

based on a misleading proxy statement. /d.

Second, from 1995 through 2006, Petitioner directed

the treasurer of TFL and TFI to withdraw $5 million to

cover office rent, which was paid to the landlords of

TFL and TFI. Pet. App. 3a, 22a. The contracts

prohibited rent reimbursement. Pet. App. 4a.

Third, in 2000, Petitioner caused TFL and TFI to

take $6.1 million in “tax distributions.” Pet. App. 3a-

4a. The contracts imposed specific conditions on

payments for tax distributions, which these payments

did not satisfy. Pet. App. 3a-ta, 23a. These payments

went both to Petitioner and others. /d.

Based on these improper distributions, the jury

found Petitioner had violated the Investment Company

Act of 1940, 15 U.S.C. § 80a-36, and that he had aided

and abetted TFL and TFI in violating the Investment

Advisers Act, 15 U.S.C. §§ 80b-5, 80b-6(1)-(2), and the

Exchange Act of 1934, 15 U.S.C. §§ 78m, 78n, and its

implementing regulations. Pet. App. 23a-24a.

B. The District Court’s Disgorgement Judgment

After the jury’s verdict, the SEC moved for entry of

judgment. It asked the district court to impose a civil

monetary penalty of $5 million and “disgorgement” of

$34.9 million. Pet. App. 27a, 33a.

As to the penalty, it was common ground that the

five-year limitations period in 28 U.S.C. § 2462 applied

to bar any claim that “first accrued” before October 27,

2004—five years before the SEC’s complaint. Pet. App.

26a; see Gabelli, 1388 S. Ct. at 1220-21. The district

court found that some, but not all, of the SEC’s claims

accrued after October 27, 2004. Pet. App. 28a. It

ordered Petitioner to pay a money penalty of $2.4

million, equal to “the amount of funds that | Petitioner)

himself received during the limitations period.” Pet.

App. 3la~32a.

Petitioner argued that § 2462 also applied to the

SEC’s claim for disgorgement, pointing to the district

court’s decision in SEC v. Graham, 21 F. Supp. 3d 1300

(S.D. Fla. 2014). Pet. App. 38a. The Graham district

court had held that “disgorgement ... can truly be

regarded as nothing other than a forfeiture ..., which

remedy is expressly covered by § 2462.” 21 F. Supp. 3d

at 1310-11; see Pet. App. 34a. The district court below,

however, found that Tenth Circuit precedent foreclosed

this argument. Pet. App. 36a.

The district court ordered Petitioner to disgorge

$34.9 million, which it found “reasonably approximates

the ill-gotten gains causally connected to [his]

violations.” Pet. App. 45a. Much of this amount

concededly was based on violations “outside the five-

year window” in § 2462. Pet. App. 42a; see Dkt. 181 at 2

(SEC’s concession that $29.9 million in

misappropriations occurred “(bjefore the limitations

period”).!

Much of the disgorgement amount concededly

reflected “funds paid to third parties,” including

“landlords or other ... persons to whom [Petitioner]

was not related.” Pet. App. 42a; see Dkt. 181 at 2

(SEC’s calculation that at least $17.6 million did not go

to Petitioner). And this amount concededly was far

greater than Petitioner could possibly “disgorge”—

Petitioner no longer had even the funds that he had

received, and he was “insolvent,” with “no prospect of

recovering from insolvency” or paying the SEC’s

requested disgorgement judgment. Pet. App. 31a; see

Pet. App. 12a—13a; Dkt. 180 at 3, 9 11. Nonetheless, the

district court ordered Petitioner to disgorge $34.9

million, plus an additional $18 million in prejudgment

interest. Pet. App. 45.

1 All citations to “Dkt.” are to the District Court docket at

SEC v. Kokesh, No. 1:09-ev-01021-SMV-LAM (D.N.M.). All

materials cited in this petition are available on PACER.

C. The Tenth Circuit’s Opinion

Petitioner appealed, renewing his argument that

§ 2462 barred the SEC’s disgorgement claims that

“accrued more than five years before the SEC brought

its action.” Pet. App. 5a.

The Tenth Circuit affirmed. The court

acknowledged that § 2462 “sets a five-year limitations

period for claims seeking certain sanctions,” including

“fany civil ... penalty, or forfeiture.”’ Pet. App. 5a—6a

(quoting 28 U.S.C. § 2462). The Tenth Circuit held,

however, that a disgorgement order is not “a penalty or

forfeiture within the meaning of § 2462.” Pet. App. 5a-—

6a, 19a.

First, the Tenth Circuit held that “disgorgement is

not a penalty under § 2462 because” it “does not inflict

punishment” but rather “is remedial.” Pet. App. 10a—

lla. While the Tenth Circuit acknowledged that

“disgorgement serves a deterrent purpose,” the court

found that disgorgement does not amount to

punishment because “it does so ... by depriving the

wrongdoer of the benefits of wrongdoing.” Pet. App.

Ila.

Next, the Tenth Circuit addressed Petitioner’s

argument “that disgorgement is a ‘forfeiture.” Pet.

App. 13a. The court acknowledged that “in common

English the words forfeit and disgorge ... capture

similar concepts,” and that the “definitions in the

leading legal dictionary ... also have similarities”:

Black’s defines “disgorgement” as a “legal compulsion”

to “‘givje] up something (such as profits illegally

obtained),” and “forfeiture” as the “loss of ... property

because of a crime, breach of obligation, or neglect of

duty.” Pet. App. 13a (quoting Black’s Law Dictionary

568, 765 (10th ed. 2014)). Likewise, the court

acknowledged that “the Eleventh Circuit recently held

that disgorgement is a forfeiture under § 2462,”

affirming the district court’s similar conclusion. Pet.

App. 18a (citing Graham, 823 F.3d at 1363-64).

Nonetheless, the court noted that “[o]ther circuits

have a different view” than the Eleventh, citing the

D.C. Cireuit’s decision in Riordan v. SEC, 627 F.3d

1230, 1234 (D.C. Cir. 2010), and the First Circuit’s

decision in SEC v. Tambone, 550 F.3d 106, 148 (1st Cir.

2008). Pet. App. 18a. The Tenth Circuit joined this

latter side of the split, stating that “[rjespectfully, we

also see things a bit differently” than the Eleventh

Cireuit. Pet. App. 14a.

The Tenth Circuit believed that § 2462 used

“forfeiture” in a “narrow” “historical sense”—as “an in

rem procedure to take ‘tangible property used in

criminal activity.” Pet. App. 14a. It reasoned that

“[wijnen the term forfeiture is linked in § 2462 to the

undoubtedly punitive actions for a civil fine or penalty,

.. Congress was contemplating the meaning of

forfeiture in this historical sense.” Pet. App. 14a—1l5a.

And the court found that the “nonpunitive remedy of

disgorgement does not fit in that company.” Pet. App.

15a. The court acknowledged that many modern

statutes use the term “forfeiture” more broadly, to

include “disgorgement-type remedies” like orders to

repay amounts reflecting the “proceeds of illegal”

activity. /d. But the court deemed these statutes

irrelevant because they occurred “after § 2462 was

enacted” and “should not expand the meaning of the

word forfeiture in § 2462 to encompass traditional

disgorgement remedies.” Pet. App. 15a—16a.

The court therefore held that “disgorgement

order(s] ... are ... no{t] forfeitures under § 2462.” Pet.

App. l6a-17a.

REASONS FOR GRANTING THE WRIT

This case presents an ideal vehicle to resolve a

circuit split on an important question of federal law. As

the Tenth Circuit acknowledged, its decision is

consistent with the decisions of two other circuits, but

conflicts with SEC v. Graham, 823 F.3d 1357, 1363-64

(llth Cir. 2016). That disagreement is outcome-

determinative: In the Eleventh Circuit, § 2462 would

have precluded most of the $34.9 million forfeiture

judgment that the Tenth Circuit, applying a different

rule, affirmed. And the disagreement is important: The

question presented recurs frequently, and billions of

dollars in potential liability, stretching back decades,

turn on it. Only this Court can restore national

uniformity, and this case is a perfect vehicle to do so.

The Court should grant certiorari.

I, THERE IS AN ACKNOWLEDGED

CIRCUIT SPLIT ON THE QUESTION

PRESENTED.

A. The Eleventh Circuit Has Held That Section

2462 Applies to Claims for Disgorgement.

In SEC v. Graham, 823 F.3d 1357 (11th Cir. 2016),

the Eleventh Circuit considered the same question as

the Tenth Circuit below. The SEC filed disgorgement

claims in 2013 based on alleged securities-law violations

in 2004 through 2008, and the issue was whether § 2462

applied to bar disgorgement claims outside that

statute’s five-year limitations period. Jd. at 1359.

The Eleventh Circuit held that “§ 2462’s statute of

limitations applies to disgorgement,” affirming the

district court’s similar holding and rendering the SEC’s

claims untimely. /d. at 1363. Section 2462, the

Eleventh Circuit noted, applies to any action seeking a

“forfeiture.” Jd. And “for the purposes of § 2462,” the

Eleventh Circuit concluded, “forfeiture and

disgorgement are effectively synonyms.” Jd.

The Eleventh Circuit looked to these terms’

“ordinary meaning.” /d. Webster’s, the court

observed, “defines forfeiture as ‘the divesting of the

ownership of particular property of a person on account

of the breach of a legal duty.” /d. (quoting Forfeiture,

Webster’s Third New Int'l Dictionary (2002)).

Similarly, the Oxford English Dictionary defines

forfeiture as “(t]he fact of losing or becoming liable to

deprivation of (an estate, goods, life, an office, right,

ete.) in consequence of a crime, offence, or breach of

engagement.” Jd. (quoting Forfeiture, Oxford English

Dictionary (2d ed. 1989)). These definitions, the court

found, “illustrate that forfeiture occurs when a person

is forced to turn over money or property because of a

crime or wrongdoing.” Jd.

The Eleventh Circuit found “no meaningful

difference in the definitions of disgorgement and

forfeiture.” Jd. “Black’s Law Dictionary,” the court

explained, “defines disgorgement as ‘[t]he act of giving

up something (such as profits illegally obtained) on

demand or by legal compulsion,” and provides “a very

similar definition for forfeiture,” which Black’s defines

as “(tJhe loss of a right, privilege, or property because

of a crime, breach of obligation, or neglect of duty.” 7d.

(quoting Disgorgement, Forfeiture, Black’s Law

Dictionary (10th ed. 2014)). Indeed, the Eleventh

Circuit noted, “[t]he Supreme Court, too, has used the

terms interchangeably.” J/d. In United States v.

Ursery, 518 U.S. 267 (1996), this Court explained that

forfeitures “are designed primarily to confiscate

property used in violation of the law, and to require

disgorgement of the fruits of illegal conduct.” /d. at

284.

The Eleventh Circuit therefore “conclude[d] that

for the purposes of § 2462 the remedy of disgorgement

is a ‘forfeiture,’ and § 2462’s statute of limitations

applies.” Graham, 823 F.3d at 1363.

The Eleventh Circuit considered and rejected the

SEC’s argument that “disgorgement cannot be

forfeiture because the two terms refer to ... different

things” in their “technical definitions.” Jd. at 1363-64;

see id. (SEC’s argument that “disgorgement only

includes direct proceeds from wrongdoing, whereas

forfeiture can include both ill-gotten gains and any

additional profit earned on those ill-gotten gains’). To

begin, the Eleventh Circuit observed that even “under

the definitions the SEC puts forth, disgorgement is

imposed as redress for wrongdoing and can be

considered a subset of forfeiture.” Jd. at 1364. More

fundamentally, the Eleventh Circuit found “no

indication that in enacting § 2462’s widely applicable

statute of limitations, Congress meant to adopt the

technical definitions ... the SEC urges over the words’

ordinary meanings.” /d. Indeed, the presumption is

the opposite—that “words in statutes should be given

their ordinary, popular meaning unless Congress

clearly meant the words in some more technical sense.”

Id. (quoting United States v. Nat’l Broiler Mktg. Ass’n,

550 F.2d 1380, 1386 (5th Cir. 1977), aff'd, 486 U.S. 816

(1978)).

Accordingly, the Eleventh Circuit held that “§ 2462

applies to ... disgorgement.” /d.

B. The First Circuit, D.C. Circuit, and Tenth

Circuit Have Held That Section 2462 Does

Not Apply to Claims for Disgorgement.

The Circuits are now in express disagreement over

whether §2462’s_ limitations period applies to

disgorgement. While the Eleventh Circuit has

answered that question in the affirmative, the First

Circuit, D.C. Circuit, and Tenth Circuit have held the

opposite.

First Circuit. The First Circuit considered

whether § 2462 applies to an SEC claim for

disgorgement in SEC v. Tambone, 550 F.3d 106 (1st

Cir. 2008). There, the SEC filed suit in 2005, but sought

disgorgement based on alleged violations dating back to

1998, which would be untimely under § 2462’s five-year

limitation period. Jd. at 115-16. The First Circuit,

however, held that § 2462 “applies only to penalties

sought by the SEC, not its request for ...

disgorgement.” Jd. at 148. Accordingly, the First

Circuit found that the claims for “disgorgement ... are

not barred” by “the applicable five-year statute of

limitations” under § 2462. /d.2

D.C. Cireuit. In Riordan v. SEC, 627 F.3d 1230

(D.C. Cir. 2010), the SEC filed its action in 2007 but

sought divestiture based on “wrongdoing that took

place before ... 2002.” Jd. at 1234. The “key question”

for the D.C. Circuit, as for the Tenth Circuit below, was

whether the “five-year statute of limitations in 28

U.S.C. § 2462 applies to an action for ... disgorgement.”

Id. That court “said no.” Jd. The D.C. Cireuit had

previously held that disgorgement orders are not

“penalties” under § 2462. Jd. (citing Zacharias v. SEC,

569 F.3d 458, 471-72 (D.C. Cir. 2009)). The court

acknowledged the argument that “disgorgement is a

kind of forfeiture covered by § 2462.” Jd. at 1234 n.1.

But the court found that its precedent “at least

implicitly rejects that argument and [wa]s binding on

... athree-judge panel.” /d.

Tenth Circuit. As just explained, the Tenth Circuit

below held that disgorgement claims are “not subject to

§ 2462.” Pet. App. 2a. It expressly disagreed with the

Eleventh Circuit’s contrary holding and instead

2 The First Circuit granted en banc review in Tambone and

withdrew the panel opinion, but the en banc court limited its

review to a different issue. See SEC v. Tambone, 573 F.3d 54 (1st

Cir. 2009). The en banc court’s subsequent opinion confined itself

to that issue and expressly reinstated the panel’s opinion on issues

that the en bane court did not reach. SEC v. Tambone, 597 F.3d

436, 450 (1st Cir. 2010). The en bane court held that certain of the

SEC’s claims could proceed, including claims seeking

disgorgement, and the panel’s rejection of the defendants’

limitations argument was necessary to that judgment. Jd.; see

Tambone, 550 F.3d at 117, 148.

followed the decisions of the First and D.C. Circuits.

Pet. App. 12a-13a.?

Il. THIS CASE IS WORTHY OF THIS

COURT'S REVIEW.

This case meets all of the Court’s criteria for

granting certiorari. First, the question presented is

important. Second, the question presented concerns an

intractable and developed circuit split on a recurring

question that only this Court can resolve. Third, this

case is a flawless vehicle.

A. The Question Presented Is Important.

The question presented is critical to the fair and

uniform enforcement of the Nation’s securities laws.

As the Court observed in Gabelli, § 2462 is not

“specific ... to securities law; it governs many penalty

provisions throughout the U.S. Code.” 133 S. Ct. at

1219; see also, e.g., United States v. EME Homer City

Generation, L.P., 727 F.3d 274, 282 n.9, 296 (3d Cir.

2013) (noting that § 2462 applies to enforcement actions

under Clean Air Act). All of the reported cases on the

question presented, however, have arisen in the

context of SEC enforcement actions, and it is in that

context that the question is of greatest practical

significance.

% District courts are also in conflict over the question presented.

Compare Graham, 21 F. Supp. 3d at 1308-11 (§ 2462 applies to

disgorgement), with, eg. SEC v. Saltsman, No. 07-CV-4370

(NGG) (RML), 2016 WL 4136829, at *24-29 (E.D.N.Y. Aug. 2,

2016); SEC v. Collyard, 154 F. Supp. 3d 781, 792 (D. Minn. 2015)

(opposite), appeal docketed, No. 16-1405 (8th Cir. Feb. 17, 2016);

SEC v, Jones, 476 F. Supp. 2d 374, 385 (S.D.N.Y. 2007).

Disgorgement has become a ubiquitous remedy in

SEC enforcement actions. Every year, the SEC brings

hundreds of enforcement actions—807 in 2015 alone.

See SEC, Select SEC and Market Data, Fiscal] 2015, at

3, https://www.sec.gov/reportspubs/select-sec-and-

market-data/secstats2015.pdf (“SEC 2015 Data”).

In virtually all of them, the SEC includes a claim for

disgorgement. See, e.g., SEC v. Pardue, 367 F. Supp.

2d 773, 778 (E.D. Pa. 2005) (“Disgorgement has become

the routine remedy for a securities enforcement

action.”); SEC v. Drexel Burnham Lambert Inc., 837 F.

Supp. 587, 611 (S.D.N.Y. 1993) (““Disgorgement is one of

the most common forms of ancillary relief granted in

SEC enforcement actions ....”).

In addition to being common, disgorgement is also a

potent remedy. For example, courts have held that the

SEC is not required to “trace[]” “specific assets ...

back to a violation.” SEC v. Quan, 817 F.3d 583, 594

(Sth Cir. 2016); see SEC v. Rosenthal, 426 F. App’x 1, 3

(2d Cir. 2011). Indeed, defendants can be required to

“disgorge” funds that they “never possessed,” but that

instead went to employers, co-workers, or unrelated

“third parties” like landlords. SEC v. Contorinis, 743

F.3d 296, 300, 307 (2d. Cir. 2014) (affirming

disgorgement of $7.2 million despite “personal profit” of

only $427,875); Pet. App. lla-12a, 42a—43a; see also

SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1475 (2d

Cir. 1996). Even if the defendant himself “ultimately ...

lost” money, still disgorgement may be ordered. SEC

v. First Pac. Bancorp, 142 F.3d 1186, 1192 & n.6 (9th

Cir. 1998). Courts have even required disgorgement

when the actual “cause of all the[| profits” was not any

securities-law violation, but rather an “intervening

cause” that was linked to the violation only by “dumb

luck”—so long as the courts determine that the

“deterrent impact” of this sanction will “further|]

future compliance.” See SEC v. Teo, 746 F.3d 90, 108—

09 (8d Cir. 2014) (defendants failed to fully report stock

holdings, but all profit was due to an unrelated tender

offer that increased the stock price). Even on

evidentiary matters, the SEC receives the benefit of

every doubt: The amount of disgorgement need not be

proven, but rather can be only a “reasonable

approximation of profits causally connected to the

violation.” SEC v. Whittemore, 659 F.3d 1, 7 (D.C. Cir.

2011) (quoting SEC v. First City Fin. Corp., Ltd., 101

F.3d 1215, 1231 (D.C. Cir. 1989)).

In the years since Gabelli, the SEC has increasingly

relied on disgorgement in order to maximize its

recoveries: Disgorgement payments have jumped 60%

since 2011, as against only a 25% rise in penalties.‘

And the SEC’s frequent and aggressive use of the

disgorgement remedy has allowed it to collect

enormous sums. In 2015 alone, for example, the SEC

collected $3 billion in disgorgement payments. SEC

2015 Data at 2. Single cases routinely yield tens or

even hundreds of millions of dollars: Under the Foreign

Corrupt Practices Act alone, there have been six

disgorgement awards over $100 million since 2008,

4 Compare SEC 2015 Data at 2 (disgorgement of $3.019 billion and

penalties of $1.175 billion), with SEC, Select SEC and Market

Data, Fiscal 2011, at 2, https:/Awww.sec.gov/reportspubs/select-

sec-and-market-data/secstats2011].pdf (disgorgement of $1.878

billion and penalties of $928 million).

including a $350 million disgorgement award against

Siemens.” The SEC’s disgorgement collections have

grown to dwarf its monetary penalties, which came to

only $1.2 billion in 2015. SEC 2015 Data at 2.

The SEC routinely seeks disgorgement for

violations dating well before the five-year limitations

period in § 2462. Here, for example, the SEC sought to

impose liability for violations that occurred 15 years

before its complaint. Pet. App. 2la. And this case is no

outlier. See, e.g., SEC v. Wyly, 56 F. Supp. 3d 394, 411

(S.D.N.Y. 2014) (2010 complaint seeking disgorgement

for violations dating to 1992); SEC v. Geswein, 2 F.

Supp. 3d 1074, 1083 (N.D. Ohio 2014) (2010 complaint

for violations dating to 1999); SEC wv. Mercury

Interactive, LLC, No. C 07-2822 JF (RS), 2009 WL

2984769, at *1 (N.D. Cal. Sept. 15, 2009) (2007 complaint

for violations dating to 1997).

The question presented in this case is whether the

SEC is entitled to pursue such stale disgorgement

claims. Given how frequently the SEC pursues

disgorgement and how powerful the disgorgement

remedy has become, that question is of great practical

importance. If § 2462 does not provide a statute of

> US. Dep’t of Justice, Press Release, Siemens AG and Three

Subsidiaries Plead Guilty to Foreign Corrupt Practices Act

Violations and Agree to Pay $450 Million in Combined Criminal

Fines (Dee. 15, 2008), https://www.justice.gov/

archive/opa/pr/2008/December/08-crm-1105.htm}; see Richard L.

Cassin, VimpelCom FCPA disgorgement is third biggest ever,

FCPA Blog (Feb. 23, 2016, 7:28 a.m.),

http://www.fcpablog.com/blog/2016/2/23/vimpelcom-fepa-

disgorgement-is-third-biggest-ever.html.

limitations for disgorgement actions, then this

sweeping liability will also be limitless in time.

Statutes of limitations aim to provide “security and

stability to human affairs,” reflecting the settled

wisdom that it would be “utterly repugnant to the

genius of our laws” if actions “could ‘be brought at any

distance of time.” Gabelli, 133 S. Ct. at 1221, 1228

(quoting Adams v. Woods, 6U.S. (2 Cranch) 336, 342

(1805)). But if § 2462 does not apply to claims that the

SEC denominates “disgorgement,” this promise will be

hollow. Every participant in the securities industry

will be eternally at risk of being confronted with “stale

claims” brought by the SEC decades after the alleged

misconduct. /d. at 1221.

Such indefinite liability not only deprives

participants of repose, but also risks inflicting grave

unfairness on individuals whose ability to defend

themselves may deteriorate with each passing year.

Statutes of limitations “promote justice by preventing

surprises through the revival of claims that have been

allowed to slumber until evidence has been lost,

memories have faded, and witnesses have

disappeared.” Gabelli, 133 S. Ct. at 1221 (quoting #.R.

Telegraphers v. Ry. Express Agency, Inc., 321 U.S. 342,

848-49 (1944)). After a decade or more, the targets of

the SEC’s disgorgement claims may struggle to

develop the evidence necessary to defend against the

sweeping, but stale, liability the SEC seeks to impose.

The potential for unfairness is particularly great given

the SEC’s penchant for condemning, after the fact,

market practices that were widespread and even

known to the SEC at the time.®

The SEC’s increasing post-Gabelli reliance on

disgorgement calls out for this Court’s review to

determine whether disgorgement claims are exempt

from the statute of limitations that applied in Gabelli,

as the First, Tenth, and D.C. Circuits have held, or

subject to that same limit, as the Eleventh Circuit has

concluded.

B. This Court Should Resolve the Circuit Split.

This case merits the Court’s review. The question

presented is not just substantively important, but

arises frequently: Since the start of 2015 alone, ten

eases have addressed the question of whether § 2462

applies to disgorgement.?

6 See, e.g., Mary Jo White, Chair, SEC, Speech at Sandler O’Neill

Partners, L.P. Global Exchange and Brokerage Conference:

Enhancing Our Equity Market Structure (June 5, 2014), http://

www.sec.gov/N ews/Speech/ Detail/Speech/13705420043 12

(promising stricter scrutiny of use of technology, high-speed

trading, and alternative trading systems); cf. Upton v. SEC, 75

F.3d 92, 98 (2d Cir. 1996) (vacating censure because SEC knew

about the practice in question before it occurred and did not

condemn it).

7 Pet. App. 16a-17a; Saltsman, 2016 WL 4136829, at *24; Graham,

823 F.3d at 1364; SEC v. Amerindo Inv. Advisors, 639 F. App’x

752, 754 (2d Cir. 2016); SEC v. Batioo, 158 F. Supp. 3d 676, 691

(N.D. Ill. 2016); SEC v. Jones, 155 F. Supp. 3d 1180, 1187 (D. Utah

2015); Collyard, 154 F. Supp. 3d at 791; SEC v. Stoecklien, No.

15CV0532 JAH WVG, 2015 WL 6455602, at *3 (S.D. Cal. Oct. 26,

2015); SEC v. Strebinger, 114 F. Supp. 3d 1321. 1328 n.6 (N.D. Ga.

2015); SEC v. Wealth Strategy Partners, LC, No. 8:14-CV-02427-T,

2015 WL 3603621, at *9 (M.D. Fila. June 5, 2015).

Only this Court can resolve the conflict of authority

between the Eleventh Circuit and its sister circuits.

There is no realistic possibility of the Eleventh Circuit

reconsidering Graiam: The unanimous panel decision

in Graham. came after the SEC appealed from a district

court decision that also applied § 2462 to disgorgement,

and after the SEC expressly urged the Eleventh

Circuit to follow the D.C. Circuit’s decision in Riordan.

See Br. of SEC at 36-87, Graham, 2014 WL 6844558

(No. 14-13562-E). The SEC then declined to file a

petition for rehearing en banc or a petition for

certiorari. See generally, Docket, SEC v. Graham, No.

14-13562-E (11th Cir.). Thus, the circuit split will

persist until this Court grants certiorari to resolve it.

There is no need for additional percolation. Four

circuits, as well as numerous district courts, have

considered whether § 2462 applies to claims for

disgorgement, and the arguments on both sides of the

split have been fully aired. Although the majority of

circuits have sided with the government, the Eleventh

Circuit’s opinion rejecting the government’s position is

eareful and correct. Indeed, this case is an even

stronger certiorari candidate than Gabelli itself, in

which only one circuit had adopted the position that

this Court ultimately endorsed, and in an unpublished

decision after the filing of the petition for certiorari.

See Br. for SEC at 23-24, Gabelli, 2012 WL 613633 (No.

11-1274) (citing SEC v. Bartek, No. 11-10594, 2012 WL

3205446, at *3-6 (5th Cir. Aug. 7, 2012)). The Court

routinely grants review in cases presenting 1-1 or 2-1

splits;’ the Court should resolve the 3-1 split presented

8 See, e.g., Ocasio v. United States, 136 S. Ct. 1423 (2016) (1-1 split);

here as well, especially in light of the substantive

importance of the question presented.

Finally, this Court’s review is especially warranted

because the circuit split creates the prospect of venue

manipulation by the government. In securities cases,

the SEC routinely has a choice of venue, which can be

proper anywhere that the defendant resides or

transacts business, or where the act or transaction

constituting the violation occurred, or—in some cases—

where any offer or sale linked to the violation took

place. SEC v. Johnson, 650 F.3d 710, 714 (D.C. Cir.

2011); see, e.g., 15 U.S.C. § 77v(a) (Securities Act); id. §

78aa (Securities Exchange Act); id. § 80b-14(a)

(Investment Adviser Act). So, for example, if an

alleged securities-law violator resides in Georgia, does

business in the District of Columbia, and makes a sale

constituting a violation of the securities laws in Denver,

the SEC can avoid any statute of limitations by

choosing to bring an action that would be governed by

the more pro-government law of the D.C. or Tenth

‘rcuits. The time for bringing a disgorgement claim,

with the vast liability it can entail, should not turn on

different interpretations of federal law in different

jurisdictions. The Court should grant certiorari and

resolve the issue nationwide.

C. This Case Is a Perfect Vehicle.

This case is an ideal vehicle. The Tenth Circuit

Nichols v. United States, 136 S. Ct. 1113 (2016) (1-1 split); Luis v.

United States, 136 8. Ct. 1083 (2016) (1-1 split); Molina-Martinez v.

United States, 136 8. Ct. 1338 (2016) (2-1 split); Taylor v. United

States, 136 S. Ct. 2074 (2016) (2-1 split).

expressly considered and rejected the Eleventh

Cireuit’s holding that § 2462 applies to claims for

disgorgement. Pet. App. 18a. And it is undisputed

that, if $2462 applied, the $34.9 million disgorgement

judgment against Petitioner could not stand: In the

SEC’s request for a money penalty concededly

governed by § 2462’s five-year limitations period, the

SEC admitted that at most $5 million reflected

securities-law violations arising “during the limitations

period, i.e., on or after October 27, 2004.” Pet. App.

26a—-27a; Dkt. 181 at 2 (SEC’s concession that the

remaining $29.9 million reflected violations “[blefore

the limitations period”). Thus, the Tenth Circuit’s

holding regarding § 2462 was plainly outcome-

determinative.

Moreover, this case is a strong vehicle because it is

characteristic of the aggressive disgorgement claims

that the SEC regularly pursues. For instance, courts

have held that the SEC is not required to “trace[]”

“specific assets ... back to a violation.” SEC v. Quan,

817 F.3d 583, 594 (8th Cir. 2016); see SEC v. Rosenthal,

426 F. App’x 1, 3 (2d Cir. 2011). That principle applies

in this case: the SEC cannot “trace” these funds to any

funds still in Petitioner’s possession, because those

funds Lave been spent. Pet. App. 12a—13a; Dkt. 180 at

3, ¥ 11. Likewise, courts have held that a defendant

may be liable to disgorge assets he never personally

received. See, e.g., Contorinis, 743 F.3d at 300, 307

(affirming disgorgement of $7.2 million despite

“personal profit” of only $427,875). Again, this case

illustrates that principle: the amount that Petitioner

has been ordered to disgorge far exceeds any amount

that Petitioner ever received, and instead reflects

payments to separate corporations, unrelated officers

of those corporations, and even iandlords. Pet. App.

3a-4a, lla—12a, 22a-23a, 42a—483a; Dkt. 180 at 2, 4 7;

Dkt. 181 at 2. The straightforward facts of this case

well illustrate the potency of the disgorgement remedy

and provide a strong vehicle for this Court’s review.

Ill. THE TENTH CIRCUIT’S OPINION IS

WRONG.

The Tenth Circuit erred in holding that § 2462 does

not apply to disgorgement claims.

Disgorgement qualifies as “forfeiture” under § 2462.

As the Eleventh Circuit persuasively explained in

Graham, “forfeiture and disgorgement are effectively

synonyms.” 823 F.3d at 1363. The court pointed out

that “Black’s Law Dictionary defines disgorgement as

{tlhe act of giving up something (such as profits

illegally obtained) on demand or by legal compulsion,”

and provides “a very similar definition for forfeiture,”

which Black’s defines as “t]he loss of a right, privilege,

or property because of a crime, breach of obligation, or

neglect of duty.” Id. (quoting Disgorgement,

Forfeiture, Black’s Law Dictionary (10th ed. 2014)).

And even this Court has equated the two terms: In

United States v. Ursery, 518 U.S. 267 (1996), this Court

explained that forfeitures “are designed primarily to

confiscate property used in violation of the law, and to

require disgorgement of the fruits of illegal conduct.”

Id. at 284.

In rejecting Graham’s reasoning, the Tenth Circuit

concluded that the term “forfeiture” referred only to in

rem forfeiture actions, and excluded remedies imposed

as part of in personan: government enforcement

actions. Pet. App. l4a-—l5a. But nothing in the

statutory text supports this artificial narrowing

construction, especially given that the other two

statutory terms in § 2462—‘“fine” and “penalty”—are

remedies that are typically imposed in the context of in

personam government enforcement actions.

Further, as the Tenth Circuit recognized, there are

multiple federal statutes requiring illicit assets to be

turned over to the government—and in those statutes,

the turnover orders are referred to as orders of

“forfeiture.” Pet. App. 15-16a. The Tenth Circuit

held that those statutes were irrelevant because they

were enacted many years after the enactment of § 2462,

Pet. App. 16a, but that reasoning is not persuasive.

Congress referred to the turnover of illicit assets as

“forfeiture” because it recognized that such turnovers

were a species of “forfeiture” under the well-settled

meaning of that term. For the same reason, the

disgorgement order imposed by the District Court falls

comfortably within the statutory definition of

forfeiture.

The Tenth Circuit also held that § 2462 does not

apply to disgorgement because it applies only to

“punitive” remedies. According to the Tenth Circuit,

disgorgement is not a “penalty” under § 2462 because

“penalties” are punitive remedies, whereas

disgorgement is not. Pet. App. 10a-13a. The Tenth

Circuit then inferred that the term “forfeiture,” too,

applies only to punitive remedies, and that “[tlhe

nonpunitive remedy of disgorgement” therefore does

not qualify as a forfeiture. Pet. App. 14a—l5a.

Even assuming § 2462 applies only to punitive

remedies, disgorgement is a punitive remedy. As such,

it amply qualifies as a “penalty,” as well as a

“forfeiture” even under the Tenth Circuit’s restrictive

definition of that term.

Disgorgement judgments are monetary judgments,

payable to the government, imposed as a result of a

judicial finding of wrongdoing. Disgorgement is not a

compensatory remedy. The SEC is not “required to

make any particular effort to compensate ... victims,”

FTC v. Bronson Partners, LLC, 654 F.3d 359, 373 (2d

Cir. 2011); see Official Comm. of Unsecured Creditors

of WorldCom, Inc. v. SEC, 467 F.3d 73, 81 (2d Cir.

2006) (compensation is at best a “secondary goal”).

Rather, the “primary purpose of disgorgement orders

is to deter violations of the securities laws’”—a classic

characteristic of a punitive remedy. SEC v. Fischbach

Corp., 133 F.3d 170, 175 (2d Cir. 1997).

The Tenth Circuit characterized disgorgement as a

nonpunitive remedy that “leaves the wrongdoer in the

position he would have occupied had there been no

misconduct.” Pet. App. 11a (quotation marks omitted).

But disgorgement is not merely a matter of the

defendant returning a tainted asset that does not

belong to him. As noted above, the SEC can obtain

disgorgement of assets that are not traceable to a

violation. Supra at 15; see Quan, 817 F.3d at 594.

Thus, disgorgement constitutes the punitive

“imposition of personal liability.” Great-W. Life &

Annuity Ins. Co. v. Knudson, 534 U.S. 204, 221 (2002).

It is a money judgment, payable to the government,

that is premised on a judicial finding that the law was

violated: a quintessentially punitive remedy.

Moreover, the SEC can obtain disgorgement of assets

that the defendant never personally received. Supra at

15; see Contorinis, 743 F.3d at 300, 307. Thus,

disgorgement may leave a defendant worse off than the

position he would have occupied without any

misconduct—further underscoring that it is a punitive

remedy.

Finally, the government’s position is inconsistent

with the longstanding American legal tradition of

applying statutes of limitations to government

enforcement actions seeking money judgments. In

Gabelli, this Court, quoting Chief Justice Marshall,

observed that it “would be utterly repugnant to the

genius of our laws’ if actions for penalties could ‘be

brought at any distance of time.” 133 S. Ct. at 1223

(quoting Adams, 6 U.S. (2 Cranch) 336, 342 (1805)).

Thus, the Court rejected an interpretation of § 2462

that would leave defendants “exposed to Government

enforcement action” for an indefinite “period into the

future,” and that eliminates the “security and stability

to human affairs” that statutes of limitation aim to

provide. J/d. at 1221, 1223 (internal quotation marks

omitted). Yet, under the government’s interpretation

of § 2462, that is precisely what will occur: enforcement

actions seeking disgorgement may reach back forever.

The Court should not contort the definition of

“forfeiture” to reach this extraordinary outcome.

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted,

CLINTON W. MARRS ADAM G. UNIKOWSKY

MARRS GRIEBEL LAW, LTD. Counsel of Record

1000 Gold Ave, SW ZACHARY C. SCHAUF

Albuquerque, NM 87102 JENNER & BLock LLP

(505) 433-3926 1099 New York Ave., NW

clinton@marrslegal.com Suite 900

Washington, DC 20001

(202) 639-6000

aunikowsky@jenner.com

APPENDIX

Appendix A

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

SECURITIES AND EXCHANGE

COMMISSION

Plaintiff-Appellee,

v. No. 15-2087

CHARLES R. KOKESH,

Defendant-Appellant.

FILED August 23, 2016

Elisabeth A. Shumaker

Clerk of Court

Appeal from the United States District Court

for the District of New Mexico

(D.C. No. 1:09-CV-01021-SMV-LAM)

Before HARTZ, PHILLIPS, and McHUGH, Circuit

Judges.

The Securities and Exchange Commission (SEC)

brought an enforcement action against Defendant

Charles Kokesh for misappropriating funds from four

SEC-registered business development companies

(BDCs) in violation of federal securities laws. After a

jury returned a verdict in favor of the SEC, the United

States District Court for the District of New Mexico

entered a final judgment permanently enjoining

Defendant from violating certain provisions of federal

securities laws, ordering disgorgement of $34.9 million

plus prejudgment interest of $18.1 million, and

imposing a civil penalty of $2.4 million. Defendant

appeals, asserting that the court’s imposition of the

disgorgement and permanent injunction was barred by

28 U.S.C. § 2462, which sets a five-year limitations

period for suits “for the enforcement of any civil fine,

penalty, or forfeiture.” He also argues that the district

court erred by precluding him from presenting

evidence of attorney and accountant participation to

show his lack of knowledge of the misconduct.

Exercising jurisdiction under 28 U.S.C. § 1291, we

affirm. We hold that both the permanent injunction and

the disgorgement order are remedial and not subject to

§ 2462. And we reject the evidentiary claim.

I, BACKGROUND

The BDCs from which Defendant misappropriated

funds were Technology Funding Medical Partners I,

L.P.; Technology Funding Partners III, L.P.;

Technology Funding Venture Partners IV, An

Aggressive Growth Fund, L.P.; and Technology

Funding Venture Partners V, An Aggressive Growth

Fund, L.P. (collectively, the Funds). The Funds raised

money from investors through public securities

offerings and invested in private start-up companies

that focused on technology, biotechnology, and medica]

diagnostics.

As a limited partnership, each Fund was governed

by a written agreement. Each agreement provided for

the election of three individual general partners and

two managing general partners. The managing general

partners conducted day-to-day operations and made

investment recommendations, subject to supervision by

the governance committee of each Fund, which was

composed of the individual general partners or the

individual general partners and two representatives of

the managing general partners.

Technology Funding Ltd. and Technology Funding,

Ine. (collectively, the Advisers), which were

SEC-registered investment advisers, were the

managing general partners for each Fund. The

Advisers were owned and controlled by Defendant.

They had contracts with the Funds—which were

signed by Defendant—that described how they would

be compensated. The contracts prohibited any

payments to the Advisers that were not expressly

specified.

From 1995 through 2006, Defendant directed the

Advisers’ treasurer to take $23.8 million from the

Funds to pay salaries and bonuses to officers of the

Advisers (which included Defendant himself) and to

take $5 million to cover the Advisers’ office rent. In

2000 he also caused the Advisers to take $6.1 million in

payments described as “tax distributions” in SEC

reports that he signed. Defendant received over 90% of

these “tax distributions,” despite paying only $10,304 in

federal taxes that year.

These paymenis violated the contracts between the

Advisers and the Funds. First, until 2000 the contracts

prohibited payments for salaries of the Advisers’

controlling persons, including Defendant and other

officers. Although the contracts were amended in 2000

to permit reimbursement for controlling-person

salaries, the amendment was based on a misleading

proxy statement (signed by Defendant) which falsely

identified him as the only controlling person and

grossly underreported his annual salary. Second, the

contracts did not provide for bonus payments and

Defendant did not disclose the bonuses to the Funds’

directors or in SEC filings that he signed on the Funds’

behalf. Third, the contracts specifically prohibited rent

reimbursement, yet he failed to disclose the rent

payments to the Funds’ directors. Fourth, although the

contracts allowed for payment of tax obligations if

certain conditions were met, the 2000 payment did not

satisfy these conditions.

Before trial the SEC filed a motion in limine to

preclude Defendant from offering evidence that he

reasonably relied on the advice of his counsel and his

accountants. The district court granted this motion

under Fed. R. Evid. 403, finding that any probative

value of such evidence was outweighed by the danger

of confusing the issues and misleading the jury. The

court acknowledged, however, that such evidence could

be presented if Defendant met the test for an

advice-of-counsel defense under United States v.

Wenger, 427 F.3d 840 (10th Cir. 2005).

The case was tried to a jury, which found (1) that

Defendant knowingly and willfully converted the

Funds’ assets to his own use or to the use of another

and (2) that he knowingly and substantially assisted the

Advisers in defrauding the Funds, in filing false and

misleading reports with the SEC, and in soliciting

proxies using false and misleading proxy statements.

The court found that disgorgement of $34.9 million

“reasonably approximates the ill-gotten gains causally

connected to Defendant’s violations,” Aplt. App., Vol. 2

at 1880 (order granting SEC’s motion for entry of final

judgment), and that an order enjoining him from

violating certain provisions of federal securities laws

was warranted because “there is a reasonable and

substantial likelihood that Defendant will again violate

the securities laws,” id. at 1876.

Il. DISCUSSION

Defendant appeals on two grounds: (1) that the

injunction and disgorgement order, obtained under 15

U.S.C. § 78u(d)(1), (5), must be set aside because the

claims accrued more than five years before the SEC

brought its action and are therefore barred under the

five-year statute of limitations in 28 U.S.C. § 2462 for

government suits seeking penalties or forfeitures; and

(2) that the district court erred in disallowing evidence

of attorney and accountant participation to show his

lack of knowledge of the misconduct. We address each

in turn.

A. Section 2462

Unless another statute specifies otherwise, § 2462

sets a five-year limitations period for claims seeking

certain sanctions. It states:

Except as otherwise provided by Act of

Jongress, an action, suit or proceeding for the

enforcement of any civil fine, penalty, or

forfeiture, pecuniary or otherwise, shall not be

entertained unless commenced within five years

from the date when the claim first accrued if,

within the same period, the offender or the

property is found within the United States in

order that proper service may be made thereon.

Id. (emphasis added). “The construction and

applicability of a federal statute of limitation is a

question of law we review de novo.” United States v.

Tellumide Co., 146 F.3d 1241, 1244 (10th Cir. 1998).

Statutes of limitation are interpreted narrowly in the

government’s favor “to protect the public from the

negligence of public officers in failing to timely file

claims in favor of the public’s interests.” /d. at 1246 n.7;

see also Guar. Trust Co. of New York v. United States,

304 U.S. 126, 1382-338, 58 S.Ct. 785, 82 L.Ed. 1224 (1938)

(public policy generally supports not imposing laches or

statutes of limitations on the government). And we

have also recognized that equitable claims are usually

not subject to statutes of limitations. See Telluride, 146

F.3d at 1245.

Defendant argues that the injunction (an order to

refrain from future violations of certain provisions of

federal securities laws) is a penalty and _ the

disgorgement order is a penalty or forfeiture within the

meaning of § 2462. We first discuss the injunction.

1. Injunction

The district court’s final judgment ordered “that

Defendant is permanently enjoined from directly or

indirectly violating Section 206(1) and (2) of the

Investment Advisers Act; Section 13(a) of the

Exchange Act and Exchange Act Rules 12b-20, 13a-1,

and 13a-13; Section 14(a) of the Exchange Act and

Exchange Act Rule 14a-9; Section 37 of the Investment

Company Act, and Section 205(a) of the Investment

Advisers Act.” Aplt. App., Vol. 2 at 1883 (final

judgment). We fail to see how an order to obey the law

is a penalty. Its purpose is not to penalize Defendant;

after all, everyone has a duty to obey the law. It is to

protect the public by giving Defendant an added

incentive to conduct himself in accordance with the

securities laws: violating the injunction would subject

him to the court’s contempt power, see 18 U.S.C.

§ 401(8) (authorizing courts to punish disobedience of a

lawful order). It has been recognized for some time that

such an order is “purely remedial and preventative,”

and not a penalty or forfeiture. Drath v. F.T.C., 239

F.2d 452, 454 (D.C. Cir. 1956) (internal quotation marks

omitted); see id. (“One is not prosecuted by being told

to desist from illegal conduct, nor does he thereby

suffer the imposition of a penalty or the forfeiture of

any legally-protected right or property.”); Welch Sci.

Co. v. N.L.R.B., 340 F.2d 199, 202-03 (2d Cir. 1965)

(NLRB’: order that “the company should cease and

desist from interrogating the New York employees

concerning their [union] membership” (a violation of

the National Labor Relations Act) was “purely

remedial”); cf. Hecht Co. v. Bowles, 321 U.S. 321, 329, 64

S.Ct. 587, 88 L.Ed. 754 (1944) (“The historic injunctive

process was designed to deter, not to punish.”). More

recently, the D.C. Circuit applied that proposition to

hold that § 2462 does not apply to an SEC

cease-and-desist order to refrain from violating

securities laws. See Riordan v. S.E.C., 627 F.3d 1230,

1234-35 (D.C. Cir. 2010); In the Matter of Guy P.

Riordan, Release No. 9085, 2009 WL 4731397 (Dec. 11,

2009) (ordering “that Guy P. Riordan cease and desist

from committing or causing any violations or future

violations of Section 17(a) of the Securities Act of 1933,

Section 10(b) of the Securities Exchange Act of 1934,

and Exchange Act Rule 10b-5”). We fully agree with

the D.C. Circuit.

Defendant relies on another decision by that circuit,

Johnson v. S.E.C., 87 F.3d 484, 491-92 (D.C. Cir. 1996),

holding that the SEC injunction in that case did impose

a penalty. But in Johnson the injunction censured the

violator and imposed a_ six-month disciplinary

suspension “from acting in a supervisory capacity with

any broker or dealer.” /d. at 486. The court held that on

the facts of record “it is evident that the sanctions here

were not based on any ... showing of the risk she posed

to the public, but rather were based on [her] alleged

failure reasonably to supervise [a subordinate].” /d. at

489. The court rejected the SEC’s contention that “the

sanctions were imposed not as punishment for past

dereliction, but primarily because of [her] present

danger to the public.” Jd. at 490. We need not assess

whether we agree with that opinion. We need only

point out that there is a qualitative difference between

a disciplinary suspension and being ordered to comply

with the law. There is no inconsistency between the

circuit’s decision in Johnson and its later decision in

Riordan holding that § 2462 does not apply to an order

requiring compliance with the securities laws.

Finally, Defendant argues that in light of his age,

insolvency (and meager prospects of recovering from

it), and the passage of time since his unlawful conduct,

he is unlikely to engage in the conduct for which he is

liable here, so the injunction must be intended solely to

punish him. He further argues that the SEC did not

allege any wrongdoing by him after the Funds and the

Advisers were dissolved, so he is being punished for

past conduct, as in Johnson. We are not persuaded. If

Defendant is not going to engage in securities-related

activity, the order does not punish him. And the

absence of SEC allegations of recent misconduct did

not preclude the district court from finding that he still

poses a risk to the public. The court found that

Defendant’s occupation would “present opportunities

for future violations” because of his extensive

experience with owning and controlling

investment-adviser firms and operating investment

companies. Also, noting Defendant’s work history, his

extravagant lifestyle, and his demeanor, the court

expressly rejected his statement that he would not

engage in business activity that could present

opportunities for future securities-laws violations.

These are factual matters and the court did not clearly

err in its findings. See Att’y. Gen. of Oklahoma v. Tyson

Foods, Inc., 565 F.3d 769, 775-76 (10th Cir. 2009)

(factual findings underlying injunction are reviewed for

clear error).

10a

2. Disgorgement

Disgorgement “consists of factfinding by a district

court to determine the amount of money acquired

through wrongdoing—a process sometimes called

‘accounting’—and an order compelling the wrongdoer

to pay that amount plus interest to the court.” United

States v. Badger, 818 F.3d 568, 566 (10th Cir. 2016)

(internal quotation marks omitted). The amount of the

disgorgement is essentially the same whether the relief

is sought in a private cause of action or, as in this case,

by the government. See 15 U.S.C. § T8u(d)(5)

(authorizing court to grant equitable relief sought by

SEC); F.T.C. v. Bronson Partners, LLC, 654 F.3d 359,

969-70 (2d Cir. 2011) (affirming district court’s award

because it “satisfies the requirements of equitable

disgorgement”’).

Defendant, who owned and controlled the Advisers,

misappropriated $34.9 million from the Funds between

1995 and 2006 to pay salaries and bonuses to officers of

the Advisers (including himself), to pay the Advisers’

office rent, and to pay phony “tax distributions.” The

district court ordered him to disgorge this money that

went to him and his subordinate cohorts, finding that

the sum “reasonably approximates the ill-gotten gains

causally connected to [his] violations.” Aplt. App., Vol.

2 at 1880. Defendant claims that the disgorgement

order is a penalty or forfeiture. We disagree. We first

address the claim that it is a penalty.

We have previously said that disgorgement is not a

penalty under § 2462 because it is remedial. See

Telluride, 146 F.8d at 1247 (“[O]ther equitable

remedies, such as disgorgement, which sanction past

lla

conduct, are remedial [rather than _ punitive].”

(emphasis added)). Other circuits have similarly held

that it is not. See Riordan, 627 F.3d at 1234

(“[D\isgorgement orders are not penalties, at least so

long as the disgorged amount is causally related to the

wrongdoing.”); S.E.C. v. Tambone, 550 F.3d 106, 148

(ist Cir. 2008) (“(T]he applicable five-year statute of

limitations period [the defendant] invokes applies only

to penalties sought by the SEC, not its request for

injunctive relief or the disgorgement of ill-gotten

gains.”), withdrawn, 573 F.3d 54 (1st Cir. 2009),

reinstated in relevant part, 597 F.3d 436, 450 (1st Cir.

2010).

The reasons for this view are clear. Properly

applied, the disgorgement remedy does not inflict

punishment. “The object of restitution [in the

disgorgement context] ... is to eliminate profit from

wrongdoing while avoiding, so far as possible, the

imposition of a penalty.” Restatement (Third) of

Restitution and Unjust Enrichment § 51(4) (Am. Law

Inst. 2010). Disgorgement just leaves the wrongdoer

“in the position he would have occupied had there been

no misconduct.” Jd. § 51 emt. k; see id. (“Disgorgement

of wrongful gain is not a punitive remedy.”). To be sure,

disgorgement serves a deterrent purpose, but it does so

only by depriving the wrongdoer of the benefits of

wrongdoing. See S.E.C. v. Contorinis, 743 F.3d 296, 301

(2d Cir. 2014) (“(Djisgorgement does not serve a

punitive function.... [Its] underlying purpose is to make

lawbreaking unprofitable for the law-breaker....”);

S.E.C. v. First City Fin. Corp., 890 F.2d 1215, 1231

(D.C. Cir. 1989) (“[D]isgorgement primarily serves to

12a

prevent unjust enrichment....”). Indeed, if punishment

is required, disgorgement can be supplemented with

exemplary damages. See Restatement (Third) § 51

emt. k.

Defendant complains that the disgorgement order is

punitive because he is being required to disgorge more

than he actually gained himself (some of the

misappropriated money went to others). But there is

nothing punitive about requiring a wrongdoer to pay

for all the funds he caused to be improperly diverted to

others as well as to himself. See Contorinis, 743 F.3d at

307 (“{WIhen third parties have benefitted from illegal

activity, it is possible to seek disgorgement from the

violator, even if that violator never controlled the

funds. The Jogic of this ... is that to fail to impose

disgorgement on such violators would allow them to

unjustly enrich their affiliates.”); S.4.C. v. Platforms

Wireless Int’l Corp., 617 F.3d 1072, 1098 (9th Cir. 2010)

(“A person who controls the distribution of illegally

obtained funds is liable for the funds he or she

dissipated as well as the funds he or she retained.”);

S.E.C. v. JT Wallenbrock & Assocs., 440 F.3d 1109,

1114-15 (9th Cir. 2006) (defendant was not entitled to

deduct business and operating expenses from the

amount of his disgorgement because “it would be

unjust to permit the defendants to offset against the

investor dollars they received the expenses of running

the very business they created to defraud those

investors into giving the defendants the money in the

first place”); S.E.C. v. Banner Fund Int'l, 211 F.3d 602,

617 (D.C. Cir. 2000) (“[A]n order to disgorge establishes

a personal liability, which the defendant must satisfy

l3a

regardless whether he retains the selfsame proceeds of

his wrongdoing.”). After all, we do not consider it

punitive to require a personal-injury tortfeasor to pay

for all damages caused by his tort (say, a motor-vehicle

accident) even if he gained nothing thereby.

Defendant also argues that the disgorgement order

is punitive because in light of his age (late sixties) and

insolvency, there is no prospect of his restoring the

gains he received. But the likelihood of the

government’s recovery is irrelevant to determining

whether his disgorgement order is punitive or remedial

because it does not change the nature of the sanction.

The disgorgement order does not require Defendant to

do more than he is capable of.

Defendant next contends that disgorgement is a

“forfeiture.” To be sure, in common English the words

forfeit and disgorge (as well as relinquish) capture

similar concepts; one subject to formal forfeiture could

be said to “disgorge” what is forfeited. The definitions

in the leading legal dictionary, although different, also

have similarities. See Black’s Law Dictionary 568, 765

(10th ed. 2014) (defining disgorgement as “(t]he act of

giving up something (such as profits illegally obtained)

on demand or by legal compulsion,” and forfeiture as

“(t]he loss of a right, privilege, or property because of a

crime, breach of obligation, or neglect of duty”).

Because of these similarities the Eleventh Circuit

recently held that disgorgement is a forfeiture under

§ 2462. See S.E.C. v. Graham, 823 F.3d 1357, 1363-64

(11th Cir. 2016).

Other circuits have a different view. See Riordan,

627 F.3d at 1234; Tambone, 550 F.3d at 148 (§ 2462 does

14a

not apply to disgorgement); see also S.H.C. v.

Saltsman, No. 07-CV-4370 (NGG) (RML), 2016 WL

4136829, at *25-29 (E.D.N.Y. Aug. 2, 2016) (rejecting

Graham and citing three other district courts sharing

that view). Respectfully, we also see things a bit

differently. The word forfeiture in § 2462 must be read

in the context of government causes of action—‘“an

action, suit or proceeding,” 28 U.S.C. § 2462.

Government forfeiture actions date back to the early

days of the Republic, and for most of the time since

then have had a narrow focus. Forfeiture was an in rem

procedure to take “tangible property used in criminal

activity.” United States v. 92 Buena Vista Ave., 507

U.S. 111, 118, 113 S.Ct. 1126, 122 L.Ed.2d 469 (1993).

Indeed, Black’s Law Dictionary defines civil

forfeiture—which, in our view, is the relevant definition

here—as “[ajn in rem proceeding brought by the

government against property that either facilitated a

crime or was acquired as a result of criminal activity.”

As the Supreme Court has summarized: “The First

Congress enacted legislation authorizing the seizure

and forfeiture of ships and cargos involved in customs

offenses. Other statutes authorized the seizure of ships

engaged in piracy.... Later statutes involved the seizure

and forfeiture of distilleries and other property used to

defraud the United States of tax revenues from the sale

of alcoholic beverages.” Jd. at 119-20, 113 S.Ct. 1126.

The owner of the seized property could be completely

innocent of any wrongdoing, and the value of the

property taken have no necessary relation to any loss

to others or gain to the owner. A modern-day example

makes the point. In Calero-Toledo v. Pearson Yacht

Leasing Co., 416 U.S. 668, 94 S.Ct. 2080, 40 L.Ed.2d 452

lda

(1974), the Supreme Court affirmed a forfeiture

proceeding in which a yacht was seized from an

innocent owner after government officers apparently

found only one marijuana cigarette on the yacht while it

was under the control of the lessee, see id. at 693, 94

S.Ct. 2080 (Douglas, J., dissenting).

When the term forfeiture is linked in § 2462 to the

undoubtedly punitive actions for a civil fine or penalty,

it seems apparent that Congress was contemplating the

meaning of forfeitwre in this historical sense. The

nonpunitive remedy of disgorgement does not fit in

that company. See Antonin Scalia & Bryan A. Garner,

Reading Law: The Interpretation of Legal Texts ch. 31,

195-98 (2012) (“Associated words bear on one another’s

meaning (noscitur a sociis).”). In fact, construing a

predecessor to § 2462, which imposed a five-year

limitations period for a “suit or prosecution for any

penalty or forfeiture,” the Supreme Court said that

“(t]he words ‘penalty or forfeiture’ in this section refer

to something imposed in a punitive way for an

infraction of a public law.” Meeker v. Lehigh Valley

R.R. Co., 236 U.S. 412, 423, 35 S.Ct. 328, 59 L.Ed. 644

(1915).

We recognize that in recent years some federal

forfeiture statutes have been expanded to include

disgorgement-type remedies, see 18 U.S.C. § 1963(a)(3)

(authorizing forfeiture of proceeds from racketeering

activity); 21 U.S.C. § 881(a)(6) (authorizing forfeiture of

the proceeds of illegal drug transactions). But this is a

recent development, occurring decades after § 2462 was

enacted in 1948. The Supreme Court recently discussed

the development in United States v. 92 Buena Vista

l6a

Ave., 507 U.S. 111, 113 S.Ct. 1126, 122 L.Ed.2d 469

(1993) (addressing scope of innocent-owner exception to

federal forfeiture statute). The introduction of

“disgorgement” features in the forfeiture laws began

with the 1978 amendment to the Comprehensive Drug

Abuse Prevention and Control Act of 1970, which

“authorize[d] the seizure and forfeiture of proceeds of

illega] drug transactions” and continued with the 1984

amendment to the Racketeer Influenced and Corrupt

Organizations Act, which likewise authorized

“forfeiture of ‘proceeds’” from racketeering activity. /d.

at 121 & n.16, 113 S.Ct. 1126. These changes in the

forfeiture statutes “marked an important expansion of

governmental power.” /d. at 121, 113 S.Ct. 1126

(emphasis added). But this expansion should not

expand the meaning of the word forfeitwre in § 2462 to

encompass traditional disgorgement remedies outside

those forfeiture statutes. We have said that when

interpreting statutory language, “words will be

interpreted as taking their ordinary, contemporary,

common meaning at the time Congress enacted the

statute.” Hackwell v. United States, 491 F.3d 1229, 1236

(10th Cir. 2007) (internal quotation marks omitted).

Further, we must not forget that we are to construe

§ 2462 in the government’s favor to avoid a limitations

bar. See Telluride, 146 F.3d at 1246 & n.7. We should

not strain to expand the meaning of the statute’s

language to restrict the government. We conclude that

the disgorgement order in this case is not a forfeiture

within the meaning of § 2462.

Because we hold that the disgorgement order and

injunction in this case are neither penalties nor

17a

forfeitures under § 2462, we need not decide whether

(as requested by the government) the statute is

inapplicable to all equitable remedies; nor need we

decide whether disgorgement remedies in forfeiture

statutes come under § 2462. And for the same reason,

we need not address Defendant’s arguments that the

government’s causes of action accrued more than five

years before it filed suit and that the statute is

jurisdictional.

B. Evidence of the Participation of

Lawyers and Accountants

Defendant argues that the district court erred in

disallowing his proffered evidence of attorney and

accountant participation. He asserts that the evidence

was proper to “show[ ] that, because of his dealings

with the Funds’ lawyers and accountants, he had no

contemporaneous awareness that he was ‘part of an

overall activity that was improper’ and did not

knowingly assist primary violation, of which he was

unaware.” Aplt. Br. at 61.

Evidence of reliance on professionals such as

attorneys and accountants is, however, significantly

restricted in this circuit. Under the standard set forth

in Wenger, ordinarily “the defendant must show (1) a

request for advice of [independent] counsel on the

legality of a proposed action, (2) full disclosure of the

relevant facts to counsel, (3) receipt of advice from

counsel that the action to be taken will be legal, and (4)

reliance in good faith on counsel’s advice,” 427 F.3d at

853 (internal quotation marks omitted); see C.K.

Carlson, Inc. v. S.E.C., 859 F.2d 1429, 1436 (10th Cir.

1988). Defendant does not contend that he satisfied the

18a

Wenger requirements in seeking to put on evidence

regarding his attorneys and accountants. Rather, he

argues that Wenger is inapplicable. As we understand

his position, it is that restrictions on evidence of

reliance on professionals concerns only evidence offered

to negate specific intent such as willfulness or intent to

defraud. Here, in contrast, he claims to be offering the

evidence to negate his knowledge of relevant facts.

That may be a valid distinction. If a defendant contends

that a professional adviser failed to convey historical

facts, Wenger may not apply. But if Defendant is

merely saying that a professional adviser failed to

convey the “fact” that a transaction contravened a

contract or a statute (that is, failed to convey

professional advice), Wenger controls. Unfortunately

for Defendant, his briefs on appeal co not preserve the

issue. Although he cites to the record, we decline to

review his challenge to the exclusion of evidence

because his briefs fail to identify specific items of

testimony that would have been offered and to state

why each would have been relevant. See Reinhart v.

Lincoln County, 482 F.3d 1225, 1228 n.1 (10th Cir.

2007) (citation to record did not preserve issue).

Moreover, even if Defendant’s evidence was somewhat

probative, it could be excluded under Fed. R. Evid. 403

if “its probative value is substantially outweighed by a

danger of ... confusing the issues.” And, as Defendant

acknowledges in his opening brief, the district court

relied on that rule to exclude evidence about his

attorneys and accountants. Yet Defendant’s opening

brief never addresses this basis for excluding his

evidence. This failure waives the issue on appeal. See

SCO Grp., Inc. v. Novell, Inc., 578 F.3d 1201, 1226 (10th

19a

Cir. 2009) (issue is waived when appellant fails to

challenge an “alternative, independently sufficient

basis for the district court’s ruling” in its opening brief);

Bronson v. Swensen, 500 F.3d 1099, 1104 (10th Cir.

2007) (“[Wle routinely have declined to consider

arguments that are not raised, or are inadequately

presented, in an appellant’s opening brief.”). We

therefore affirm exclusion of the evidence.

III. CONCLUSION

We AFFIRM the district court’s final judgment.

20a

Appendix B

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW MEXICO

SECURITIES AND EXCHANGE

COMMISSION,

Plaintiff,

V. No. 09-ev-1021

SMV/LAM

CHARLES R. KOKESH,

Defendant.

March 30, 2015

MEMORANDUM OPINION AND ORDER

GRANTING PLAINTIFF’S MOTION FOR

ENTRY OF FINAL JUDGMENT

THIS MATTER is before the Court on Plaintiffs

Motion for Entry of Final Judgment against Defendant

Charles R. Kokesh [Doec. 176] (“Motion”), filed on

December 2, 2014. Defendant filed his Response and

Declaration on January 7, 2015. [Docs. 179, 180).

Plaintiff replied on January 21, 2015. [Doc. 181). The

Court heard oral argument on March 9, 2015. Having

considered the motion, briefing, oral argument, record,

and relevant law and being otherwise fully advised in

the premises, the Court finds that the Motion is

well-taken and will be GRANTED.

Z2la

a BACKGROUND

Defendant owned and controlled two

SEC-registered investment-adviser firms, Technology

Funding Ltd. (“TFL”) and Technology Funding, Inc.

(“TFI”) (collectively, “the Advisers”). TFL and TFI

were contracted to provide investment advice to four

SEC-registered business development companies

(“BDCs” or “Funds”). Plaintiff filed its Complaint [ Doc.

1] on October 27, 2009, alleging that, inter alia, from

1995 through July 2007, Defendant misappropriated

more than $34.9 million from the Funds; caused the

filing of false and misleading SEC reports and proxy

statements to conceal the truth about his

misappropriation scheme; and caused the execution,

renewal, and performance of contracts with illegal

performance-fee provisions. [Doc. 166] at 11-16. The

Court presided over a five-day jury trial that began on

November 38, 2014, [Doc. 168], and concluded with a

jury verdict against Defendant on all claims, [Doc. 174].

A. Direct Violations

The jury rendered a verdict against Defendant,

finding that he “knowingly and willfully” converted

investment-company assets to his own use or to the use

of another, in direct violation of § 37 of the Investment

Company Act of 1940 (“Investment Company Act”), 15

U.S.C. § 80a-86. [Doc. 174] at 2; [Doc. 166] at 30.

Specifically, the evidence established that, through two

investment advisers he owned and controlled, TFL and

TFI, Defendant converted $34,927,329 from the Funds

as follows:

22a

First, from 1995 through 2006, Defendant directed

the Advisers’ treasurer, Charlie Freeman, to take

$23,807,091 from the Funds to pay salaries and bonuses

to Defendant and other officers of the Advisers. The

contracts between the Advisers and the Funds

contained no bonus provision and prohibited payments

to the Advisers that were not expressly specified in the

contracts. Defendant signed the contracts. Defendant

did not disclose the bonus payments to the Funds’

directors or in SEC filings he signed on the Funds’

behalf.

Moreover, until a 2000 amendment, the contracts

specifically prohibited reimbursements to cover

salaries of the Advisers’ “controlling persons,”

including Defendant and the other officers. The 2000

amendment permitted reimbursement for

controlling-person salaries. But it was based on

misleading proxy statements signed by Defendant that

falsely identified him as the only controlling person.

The proxy statements also falsely stated that

Defendant’s average annual salary from 1998 through

2000 was $221,000 when, in fact, it was $771,000.

Following the amendment, Defendant caused TFL and

TFI to take average annual payments more than 15

times greater than the anticipated average annual

payments disclosed in the proxy statements.

Second, from 1995 through 2006, Defendant directed

Freeman to take $5,007,441 from the Funds to cover

the Advisers’ office rent. Defendant knew the contracts

specifically prohibited such rent reimbursement.

Defendant did not disclose the rent payments to the

Funds’ directors.

23a

Third, in 2000, Defendant caused the Advisers to

take $6,112,797 in payments falsely described in SEC

reports he signed as “tax distributions.” The contracts

required several conditions to be met before the

Advisers could be paid a distribution to cover their tax

obligations. But the payments in 2000 did not satisfy

the contracts’ stated conditions for tax distributions

and had nothing to do with any tax obligation.

Defendant personally received more than 90% of the

money. Defendant knew the money he received was not

related to a tax liability, but he did not return the

money to the Funds. Defendant paid only $10,304 in

federal taxes in 2000.

B. Aiding-and-Abetting Violations

From the same misconduct described above, the

jury found that Defendant “knowingly and

substantially assisted” the Advisers to employ a device,

scheme, or artifice to defraud a client and to engage in a

transaction, practice, or course of business that

operated or would operate as a fraud or deceit upon a

client and that, in so doing, Defendant aided and

abetted violations of Sections 206(1) and 206(2) of the

Advisers Act, 15 U.S.C. §§ 80b-6(1) and (2). [Doc. 174]

at 1; [Doc. 166] at 18, 21. The jury further found that he

aided and abetted violations of § 205 of the Advisers

Act, 15 U.S.C. § 80b-5, by knowingly assisting an

investment adviser to perform on a contract that

provided for illegal profit sharing in an investment

company.

The jury also found that Defendant knowingly and

substantially assisted the Funds in filing false and

misleading quarterly and annual reports with the SEC

24a

and in soliciting proxies using false and misleading

proxy statements, thereby aiding and abetting

violations of § 13(a) and 14(a) of the Exchange Act, 15

U.S.C. §§ 78m and 78n, and Exchange Act Rules

12b-20, 13a-1, 13a-13, and 14a-9, 17 C.F.R.

§§ 240.12b-20, 13a-1, 13a-13, and 14a-9.

Under § 209(f) of the Investment Advisers Act of

1940 (“Advisers Act”) and § 20(e) of the Securities

Exchange Act of 1934 (“Exchange Act”), any person

who aids and abets another person’s violation shall be

deemed to be in violation to the same extent as the

person who committed the violation. 15 U.S.C.

$§ 80b-9(f) and 78t(e). Accordingly, having been found

liable of aiding and abetting certain violations of the

securities laws, Defendant is deemed to be in violation

to same extent as the primary violators.

C. Plaintiff's Motion for Entry of

Judgment

Based on the jury’s verdict, Plaintiff filed the

instant Motion seeking entry of final judgment ordering

Defendant: (1) to pay a civil money penalty, (2) to be

permanently enjoined from violating specified

provisions of federal securities laws, and (3) to disgorge

the amounts that Defendant misappropriated — in

violation of securities laws. [Doc. 176] at 1. Defendant

urges the Court to deny all of the requested relief.

Il. ANALYSIS

The statute of limitations at 15 U.S.C. § 2462 applies

to the civil money penalty and, thus, limits the total

amount of penalty that the Court may impose.

However, because some of the claims first accrued

25a

within the limitations period, § 2462 does not bar a civil

money penalty in its entirety. In light of the facts and

circumstances, the Court finds that a third-tier, civil

money penalty should be imposed against Defendant in

the amount of $2,354,593.

The Court further finds that neither injunction nor

disgorgement constitutes a “penalty” in this case

because neither is unrelated to, or in excess of, the

damages caused by Defendant. In fact, they are

tailored to the injury caused by Defendant. Therefore,

neither injunction nor disgorgement is subject to the

statute of limitations at § 2462.

The Court further finds that there is a reasonable

and substantial likelihood that Defendant, if not

enjoined, will violate securities laws in the future.

Accordingly, he will be permanently enjoined from

violating the securities laws.

Finally, the Court determines that $34,927,329

reasonably approximates the ill-gotten gains causally

connected to Defendant’s violations and will order him

to disgorge that amount, plus prejudgment interest of

$18,077,103.37.

A. The Court will impose a civil penalty

against Defendant in the amount of

$2,354,593.

There is no dispute that a civil money penalty

generally would be available for the violations at issue

in this case. [Doc. 176] at 9 (citing 78u(d); 80b-9(e); and

80a-41(e)); [Doc. 179] at 5. Similarly, there is no dispute

that § 2462 applies to such a penalty and, thus, limits

26a

the time period during which Plaintiff may seek to

enforce it. The statute reads:

Except as otherwise provided by Act of

Congress, an action, suit or proceeding for the

enforcement of any civil fine, penalty, or

forfeiture, pecuniary or otherwise, shall not be

entertained unless commenced within five years

from the date when the claim first accrued if,

within the same period, the offender or the

property is found within the United States in

order that proper service may be made thereon.

§ 2462. The parties further agree that because Plaintiff

filed its Complaint on October 27, 2009, the relevant

limitations period begins on October 27, 2004.

Accordingly, there is no dispute that the claim for a

civil money penalty must have “first accrued” on or

later than October 27, 2004. If it “first accrued” on or

prior to October 26, 2004, it would be barred.’

The parties dispute when the claim for the civil

money penalty “first accrued.” Plaintiff maintains that

the claim accrued for purposes of § 2462 when the

monies at issue were taken by Defendant. [Doc. 181] at

1-3. Plaintiff concedes that monies taken by Defendant

on or before October 26, 2004, are barred by § 2462. /d.

However, according to Plaintiff, Defendant took

$5,004,773 and also signed and filed misleading reports

with Plaintiff during the limitations period, i.e., on or

' The five-year limitations period may be subject to tolling under

certain circumstances. SEC v. Jones, 476 F. Supp. 2d 374, 381

(S.D.N.Y. 2007). However, here, Plaintiff does not argue that it is

entitled to tolling. See [Doc. 181].

27a

after October 27, 2004.° Jd. Therefore, Plaintiff urges

the Court to impose a civil monetary penalty against

him for $5,004,773. Id.

Defendant argues that no monetary penalty should

be imposed because the claim first accrued prior to the

limitations period. Defendant’s position is that accrual

occurred, not when he took funds, but rather when he

submitted the first of certain filings with Plaintiff.

Specifically, he argues that the claim related to his

improper receipt of incentive payments accrued when

“the registration statements originally containing the

unauthorized incentive compensation plans were filed

with the SEC.” [Doc. 179] at 3 (citing Exs. 2, 54, 165,

274), at 7 (such statements were filed between 1986 and

1992). He argues further that the claim related to the

wrongful tax distributions accrued when the quarterly

10Qs and annual 10Ks were filed with SEC in May of

2000. [Doc. 179] at 7; at 4 (citing Exs. 83, 195, 295,

(10Qs) 91, 203, 299 (10Ks)). Finally, the claim related to

the improper payments to “controlling persons”

accrued when the related definitive proxy solicitations

were filed with Plaintiff on Nov. 8, 2000. [Doc. 179] at 3

(citing Exs. 29, 90, 202, 298), at 7. Defendant makes no

argument regarding the accrual of the claim related to

the improper rent payments. See [Doc. 179].

* The monies included improper payments to “controlling

persons,” office-rent payments, and bonuses. [Doe. 181] at 1-3. The

misleading reports are contained in Exhibits 117, 119, 122, 127,

131, 144, 139, 156, 232, 233, 289, 243, 245, 247, 252, 268, 323. 325,

330, 334, 338, 340, and 346. [Doc. 181] at 3, n.4.

28a

A claim “accrues” under § 2462 when the fraud

occurs (as opposed to when it is discovered). Gabelli v.

SEC, 133 S. Ct. 1216, 1220 (2013). In this case,

Defendant’s fraud spanned 12 years and continued into

the limitations period. Therefore, his fraud accrued

both before and after October 27, 2004, the limitations

cut-off for the purposes of § 2462. Under Gabelli, the

fraud that accrued before the cut-off would be barred

by § 2462, while the fraud accruing after would not.

Accordingly, some of the _ illegally obtained

funds—those distributed after on or after October 27,

2004—are not barred hy the statute of limitations.

Having found that some of the illegally obtained

funds would not be barred by § 2462, the Court must

still evaluate whether to impose a civil money penalty,

and if so, how much. The relevant statutes set forth a

three-tier penalty structure in which each tier provides

for a penalty that shall not exceed the greater of either

a specific enumerated statutory amount or “the gross

amount of pecuniary gain to such defendant as a result

of the violation.” 15 U.S.C. §§ 78u(d)\(3)(B), 80b-9(e)(2),

80a-41(e)(2). A first-tier penalty cannot exceed the

greater of $5,000 or the gross amount of pecuniary gain;

a second-tier penalty cannot exceed the greater of

$50,000 or the gross amount of pecuniary gain; and a

third-tier penalty cannot exceed the greater of $100,000

or the gross amount of pecuniary gain. Jd.’ The

; Although the statute itself provides for enumerated penalties

not to exceed $5,000, $50,000, and $100,000, respectively, this

statutory amount has been adjusted for inflation pursuant to the

Debt Collections Improvement Act of 1996, Pub. L. No. 104-134,

§ 31001 (April 26, 1996). See 17 C.F.R. § 201.1003. Accordingly, the

29a

first-tier penalty appears to be the default penalty

amount. A second-tier penalty is appropriate if the

violation “involved fraud, deceit, manipulation, or

deliberate or reckless disregard for a regulatory

requirement.” §§ 78u(d)(8)(B)ii), 80b-9(e)(2)(B),

80a-41(e)(2)(B). A third-tier penalty is appropriate if

the requirements for a second-tier penalty are met and

the violation “directly or indirectly resulted in

substantial losses or created a significant risk of

substantial losses to other persons.” §§ 78u(d)(3)(B (iii),

80b-9(e)(2)(C), 80a-41(e)(2)(C).

Courts determine the amount of the civil penalty, if

any, “in light of the facts and circumstances” of the

particular case. §§ 78u(d)(3)(B), 80b-9(e)(2),

80a-41(e)(2). In determining the amount of a civil

penalty, courts have looked to various factors,

including: (1) the egregiousness of the violations at

issue; (2) the degree of the defendant’s scienter; (3)

whether the violations were isolated or recurrent; (4) a

defendant’s failure to admit wrongdoing; (5) whether

the defendant’s conduct created substantial losses or

the risk of substantial losses to investors; (6)

defendant’s lack of cooperation and honesty with

authorities; and (7) whether an otherwise appropriate

penalty should be reduced due to the defendant’s

demonstrated current and f ture financial condition.

SEC v. United Amer. Ventures, LLC, 2012 U.S. Dist.

LEXIS 51978, *24 (D.N.M. Mar. 2, 2012) (citing S.E.C.

actual statutory amounts have incicased. However, the specific

amounts are not ultimately consequential here because the Court

does not rely on them in awarding the civil money penalty. See

infra.

30a

v. Universal Express, Inc., 646 F. Supp. 2d 552, 568

(S.D.N.Y. 2009) (listing factors)). The purpose of a civil

penalty is to punish the wrongdoer and discourage

future violations of the securities laws. See, e.g., id. at

*27 (considering punishment and deterrence in

imposing civil money penalties).

In this case, Defendant was found liable for

numerous “knowing” violations of securities laws, and

the circumstances were egregious. He misappropriated

nearly $35 million over an ll-year period, abusing his

roles in several adviser and investment firms for his

own personal benefit and to the detriment of investors.

He specifically targeted smaller investors (those

investing $5,000 or less) because they would be less

likely to sue if they discovered his schemes. See Trial

Transcript dated Nov. 4, 2014 [Doc. 163] at 43-44.

Based on these circumstances, the Court finds that

Defendant’s violations were egregious.

Defendant was aware of his wrongdoing, which

supports a higher civil penalty. Scienter, according to

the Supreme Court, is knowing or intentional

misconduct designed to deceive or defraud investors.

Rolf v. Blyth, Eastman Dillon & Co., Inc., 570 F.2d 38,

45 (2nd Cir. 1978) (citing Ernst & Ernst v. Hochfelder,

425 U.S. 185, 199 (1976)); see also SEC v. Wall Street

Pub. Institute, Inc., 591 F. Supp. 1070, 1084 (D.D.C.

1984) (scienter established by showing intentional,

knowing, or reckless conduct resulting in the alleged

fraud or deceit). Tenth Circuit authority has reasoned

that illegal conduct that is knowing and willful satisfies

the scienter requirement. Hdward J. Mawod & Co. v.

SEC, 591 F.2d 588 (10th Cir. 1979). Defendant is highly

Sla

educated and by all accounts highly intelligent and

knowledgeable about advising and investing. These

circumstances, coupled with the vast extent of the

fraud, tend to show that Defendant acted with a high

degree of scienter.

The fourth and fifth factors support a higher civil

penalty, but the sixth and seventh do not. Defendant

has never admitted any wrongdoing. Even in the face

of a unanimous jury verdict, Defendant has not

recognized his wrongful conduct. In his Declaration,

[Doe. 180], filed concurrently with the Response, [ Doc.

179], Defendant blames the dissolution of the Funds on

market conditions and certain market collapses. /d.

Defendant also blames the “profound changes in the

capital markets” since 2000 rather than take any

responsibility for his own conduct. [Doc. 179] at 9. He

even blames those in control of the very funds he

pilfered. See Final Jury Instructions [Doc. 166] at

15-17. His conduct created substantial losses to

investors. However, Defendant has cooperated with

Plaintiffs investigations. Defendant strenuously

emphasizes the seventh factor. He insists that he is

insolvent and has no prospect of recovering from

insolvency, which if true, may support a lower civil

penalty.

Balancing these factors, and pursuant to

78u(d)(3)(B)(iii), 80b-9(e)(2)(C), and 80a-41(e)(2)(C), the

Court finds that Defendant meets the statutory

requirements for third-tier penalties. In furtherance of

the dual purposes of punishment and deterrence, and

on careful consideration of all the circumstances, the

Court finds that a civil money penalty equal to the

32a

amount of funds that Defendant himself received

during the limitations period, or $2,354,593, is

warranted.’ See [Doc. 179] at 4 (Defendant’s calculated

total).

B. The Court will permanently enjoin

Defendant from violating the securities

laws and order him to disgorge

$34,927,329 plus prejudgment interest

of $18,077,103.37.

The parties agree that the violations at issue in this

case could result in an injunction barring further

violations, as well as a disgorgement order. [Doc. 176]

at 4-5 (citing 15 U.S.C. §§ 78u(d), 80b-9(d), 80a-41(d));

see [Doc. 179] at 8-11. Additionally, the parties agree

that an injunction or disgorgement order, being an

equitable remedy, would not be subject to the five-year

statute-of-limitations found in § 2462. [Doc. 179] at

8-11; [Doc. 181] at 3-7. They also agree that if an

injunction or disgorgement order did amount to a

“penalty,” those remedies would then become subject

to the § 2462 limitations period. [Doc. 179] at 8-11;

| Doce. 181] at 3-7.

The dispute here is whether the injunction or

disgorgement order requested by Plaintiff constitutes a

“penalty” such that § 2462 would apply. Plaintiff argues

* This finding should not be interpreted as a legal determination

on whether civil money penalties may be imposed for monies paid

to third-parties. Although Defendant has raised such argument,

| Doe. 179] at 4-6, the Court need not reach the issue because, here,

a penalty exceeding the amount that Defendant himself received is

not warranted anyway.

33a

that neither remedy amounts to a “penalty,” and

therefore, § 2462 does not apply. Plaintiff urges the

Court to permanently enjoin Defendant from violating

the securities law and to order him to disgorge all of his

ill-gotten gains, in the amount of $34,927,329. [Docs.

176, 181).

Defendant argues that neither an injunction nor a

disgorgement order—apparently in any amount—is

permissible. He makes the same § 2462

statute-of-limitations argument here that he makes

against a civil penalty. See n.4, supra. With respect to

these (traditionally) equitable remedies, however, he

makes a necessary additional argument. He insists that

an injunction or disgorgement order would constitute a

civil penalty under § 2462. If he is correct, and if either

constitutes a civil penalty, then § 2462's

statute-of-limitations period applies. As he did with the

civil-money-penalty argument, Defendant posits that

all of Plaintiff's claims “first accrued” prior to October

27, 2004. Therefore, any injunction or disgorgement

order would be barred by § 2462. To support his theory,

he points to SEC v. Graham, 21 F. Supp. 3d 1300 (8.D.

Fla. 2014), and Gabelli, 133 S. Ct. at 1220-21.

In Graham, the Honorable Lawrence King, United

States District Judge for the Southern District of

Florida, held that an injunction barring future

violations of securities laws and a disgorgement order

would be “penalties” subject to § 2462’s statute of

limitations. 21 F. Supp 3d at 1810-11. In Graham, all of

the alleged wrongdoings had occurred outside of

§ 2462’s five-year limitations period, which was the

heart of Judge King’s ruling. /d. at 1305. Relying

34a

heavily on the Supreme Court’s decision in Gabelli,

which reaffirmed the fundamental importance and

necessity of statutes of limitations, Judge King rejected

the notion that equitable remedies for violations of

securities laws might not be subject to § 2462 and thus

might have no statute of limitations. Jd. at 1310-11. He

reasoned that under Gabelli, there simply must be

some method of repose. After all, finding that § 2462

did not apply to equitable remedies “would make the

Government’s reach to enforce such claims akin to its

unlimited ability to prosecute murderers and rapists.”

Id. at 1310. Accordingly, he found that enjoining the

defendants from any future violations of securities laws

“can be regarded as nothing short of a_ penalty

‘intended to punish,’ especially where [there was] no

evidence (or allegations) of any continuing harm or

wrongdoing [within the limitations period].” Jd. at 1310.

With respect to the proposed disgorgement order,

Judge King found that it would be essentially the same

as a civil penalty (which is clearly subject to § 2462)

because ordering the disgorgement of al] ill-gotten

gains would be tantamount to a forfeiture. /d. at

1310-11.

Although the Graham opinion does not expressly

mention the term, Judge King’s reasoning is referred to

as the concurrent remedy rule. “The concurrent

remedy rule provides: when legal and equitable relief

are available concurrently (7.e., when an action at law or

equity could be brought on the same facts), equity will

withhold its relief in such a case where the applicable

statute of limitations would bar the concurrent legal

remedy.” United States v. Telluride Co., 146 F.3d 1241,

35a

1249 n.12 (10th Cir. 1998) (internal quotation marks

omitted) (citing Cope v. Anderson, 331 U.S. 461, 464

(1947)). As Plaintiff points out, the Tenth Circuit has

spoken on this issue and has reached a different result

than Graham. Id.

In Telluride, the Tenth Circuit held that equitable

remedies are available to the government even where

legal relief on the same facts is barred by the statute of

limitations. /d. at 1248-49. The court explained that “a

suit by the United States in its governmental capacity

is not subject to a time limitation unless Congress

explicitly imposes one and any statute of limitations

sought to be applied against the United States must

receive a_ strict construction in favor of the

Government.” /d.

In addition to rejecting the concurrent remedy rule,

the court also determined whether the equitable relief

sought—enjoining the defendant from continuing to

illegally fill wetlands and requiring the defendant to

restore damaged wetlands or create new wetlands to

replace those that could not be restored—amounted to

a penalty and, thus, whether § 2462 applied. /d. at 1243,

1245-46. The court held that the injunction did not

constitute a penalty under § 2462 because it sought only

to restore the damaged wetlands. Jd. at 1246. It “did

not seek compensation unrelated to or in excess of the

damage caused by the defendant’s acts.” Id.

On careful analysis of the case law, this Court is not

persuaded that the reasoning in Graham should apply

here. First, Graham is factually distinct. In Graham,

none of the alleged wrongdoing had occurred within the

limitations period. Here, however, the Court has found

36a

that some of Defendant’s wrongs did occur within the

limitations period. Therefore, even if the concurrent

remedy rule were to apply in this case, it would not

preclude all equitable relief. Second, the Court finds

Graham to be an outlier. Plaintiff cites numerous cases

in which other courts have addressed, and rejected,

Graham’s reasoning. See [Doc. 181] at 10 (collecting

cases). Finally, and most importantly, this Court is

bound by Telluride and, accordingly, shall not apply the

concurrent remedy rule.

Graham and the concurrent remedy rule

notwithstanding, Defendant still argues that the

injunction and disgorgement sought in this case are

actually “penalties” subject to § 2462. A permanent

injunction or a disgorgement order would be a punitive

measure, and thus subject to § 2462, if it is imposed as

“a form of punishment” that “goes beyond remedying”

the damage allegedly caused by the defendant. Johnson

v. SEC, 87 F.3d 484, 488 (D.C. Cir. 1996). A § 2462

penalty is a “sanction or punishment imposed for

violating a public law which goes beyond compensation

for the injury caused by the defendant.” Telluride, 146

F.3d at 1246. In other words, there may be a penalty

where the “sanction seeks compensation unrelated to,

or in excess, of the damages caused by the defendant.”

Id.

i. Injunction

Defendant urges the Court to ignore Telluride in

determining whether the proposed injunction would

amount to a penalty. Defendant argues that the

injunction would constitute a penalty because there is

minimal] likelihood that the injunction would restore the

37a

status quo ante Defendant’s wrongs, and because there

is “no reasonable prospect of future harm.” [Doc. 179]

at 9-10; see SEC v. Jones, 476 F. Supp. 2d 374, 384

(S.D.N.Y. 2007) (holding that where the SEC adduced

no positive proof, aside from the defendants’ past

wrongdoing, to suggest some cognizable danger of

recurrent violation, an injunction barring future

violations of securities laws would constitute a

“penalty” under § 2462).

The Court is not persuaded. The Court finds that

the requested injunction—barring Defendant from any

future violations of the securities laws—is not a penalty

under § 2462 because it does not seek compensation

unrelated to or in excess of the damage caused by

Defendant. See Telluride, 146 F.3d at 1246. In fact,

enjoining Defendant from future _ securities-laws

violations is precisely tailored to Defendant’s wrongs.

Additionally, even assuming arguendo that the

injunction were a penalty, § 2462 would not bar it.

Because the Court finds that some of Defendant’s

violations occurred within the five-year window,

injunctive relief—even if tantamount to a

“penalty”—would not be barred by the statute of

limitations.

Even though the Court has found that the

injunction requested in this case is not a penalty and is

not barred by the statute of limitations, those findings

do not mean, ipso facto, that an injunction is warranted.

“An injunction based on the violation of securities laws

is appropriate if the SEC demonstrates a reasonable

and substantial likelihood that the defendant, if not

enjoined, will violate securities laws in the future.”

38a

SEC v. Pros Int’l, Inc., 994 F.2d 767, 769 (10th Cir.

1993). The relevant factors for determining the

likelihood of future violations are the seriousness of the

violation, the degree of scienter, whether the

defendant’s occupation will present opportunities for

future violations, and whether the defendant has

recognized his wrongful conduct and gives sincere

assurances against future violations. Jd. While no single

factor is determinative, “the degree of scienter bears

heavily on the decision.” /d.

The first factor, the seriousness of Defendant’s

violations, was established at trial. Defendant was

found liable for numerous “knowing” violations of

securities laws, and the circumstances were egregious.

He misappropriated nearly $35 million over an 11-year

period, abusing his roles in several adviser and

investment firms for his own personal benefit and to

the detriment of investors. He specifically targeted

smaller investors (those investing $5,000 or less)

because they would be less likely to sue if they

discovered his schemes. See Trial Transcript dated

Nov. 4, 2014 [Doc. 163) at 48-44. Based on these

circumstances, the Court finds that Defendant’s

violations were quite serious. Consequently, this factor

weighs in favor of an injunction.

The second factor, Defendant’s degree of scienter,

also weighs in favor of an injunction. Scienter,

according to the Supreme Court, is knowing or

intentional misconduct designed to deceive or defraud

investors. Rolf, 570 F.2d at 45 (citing Ernst & Ernst,

425 U.S. at 199); see also Wall Street Pub., 591 F. Supp.

at 1084 (scienter established by showing intentional,

39a

knowing, or reckless conduct resulting in the alleged

fraud or deceit). Tenth Circuit authority has reasoned

that illegal conduct that is knowing and willful satisfies

the scienter requirement. Edward J. Mawod & Co., 591

F.2d 588.

Defendant is highly educated and by all accounts

highly intelligent and knowledgeable about advising

and investing. The jury found that his violations were

committed “knowingly.” [Doc. 174). These

circumstances, coupled with the vast extent of the

fraud, tend to show that Defendant acted with a high

degree of scienter.

The third factor is whether Defendant’s occupation

will present opportunities for future violations.

Defendant testified at trial that he owned and

controlled investment-adviser firms and operated

investment companies for decades. [Doc. 165] at 48-58;

[Doec. 166] at 38-69. He holds a law degree and a

master’s degree in business administration. At trial, he

expounded on his vast business experience, knowledge,

and training in business formation and securities

markets. /d. Defendant attests that he does not intend

to engage in business activity that would present

opportunities for future violations, citing his age (67

years old), his alleged insolvency, loss of his residence

in foreclosure proceedings, and “fundamental market

changes” precluding investment opportunities in high

tech initial public offerings. [Doc. 180]. Howevei, his

occupation has historically been in business formation

and securities markets. /d. Moreover, the evidence at

trial establishes that Defendant has been accustomed to

an extravagant lifestyle, and in light of his demeanor,

40a

the Court is not persuaded that Defendant would

refrain from pursuing a business opportunity that could

lead to violating the securities laws. Although

Defendant attests that he is not currently employed,

{[Doc. 180] at 3, the Court finds this third factor favors

issuance of an injunction.

The final factor the Court considers is whether

Defendant has recognized his wrongful conduct or

given assurances against future violations. Even in the

face of a unanimous jury verdict, Defendant has not

recognized his wrongful conduct. Defendant’s

Declaration, [Doc. 180], filed concurrently with his

Response, [Doc. 179], blames the dissolution of the

Funds on market conditions and certain market

collapses. Jd. Defendant also blames the “profound

changes in the capital markets” since 2000 for his

financial circumstances rather than take any

responsibility for his own conduct. [Doc. 179] at 9. His

claims that he does not intend to engage in his prior

business activities are self-serving. Defendant has not

recognized his wrongful conduct, nor has he given any

credible assurances against future violations.

Therefore, the final factor also weighs in favor of an

injunction.

All of the factors set forth by the Tenth Circuit

weigh in favor of issuing a permanent injunction.

Therefore, the Court finds that there is a reasonable

and substantial likelihood that Defendant will again

violate the securities laws. Accordingly, an injunction is

warranted and shall issue.

Ala

ii. Disgorgement

The question of disgorgement is slightly different

from the question of an injunction. Although the Court

finds that some of the violations occurred within the

five-year period, not all did. Nevertheless, Plaintiff

requests disgorgement of all funds that were

misappropriated, even those outside the five-year

window. Therefore, the Court first analyzes whether

disgorgement in this case would constitute a penalty

such that § 2462 would apply. Finding that it does not

apply, the Court next evaluates whether and to what

extent disgorgement is warranted.

a. Disgorgement in this case is not

a penalty.

In Telluride, the Tenth Circuit explained that an

equitable remedy, like disgorgement, would not amount

to a “penalty” under § 2462 where it “did not seek

compensation unrelated to or in excess of the damage

caused by the defendant’s acts.” 146 F.3d at 1246. The

court specifically described disgorgement as “remedial”

even though it “sanction{s] past conduct. Jd. at 1247.

Under Telluride, equitable disgorgement should apply

to “ill-gotten gains earned by the defendant while in

violation of securities laws.” /d. (internal quotation

marks omitted).

Nevertheless, relying upon other, out-of-circuit

cases, namely Johnson, Bartek, and Commonwealth

Chemical, Defendant urges the Court to find that

disgorgement would constitute a penalty because of the

“crushing financial consequences” to Defendant, and

because there is no evidence of the likelihood of

42a

recurrence of violations. [Doc. 179] at 10. Therefore,

Defendant argues that no equitable purpose could be

served by ordering disgorgement of all of the

misappropriated funds, including those taken outside

the five-year window. Id.

However, neither Johnson nor Bartek nor

Commonwealth Chemical supports his position.

Disgorgement was not at issue in any of these cases.

See Johnson 87 F.3d at 491; Bartek, 484 F.App’x at

950-57; SEC v. Commonwealth Chem. Sec., Inc., 574

F.2d 90, 95-96, 102 (2d Cir. 1978). In fact, the Johnson

court refers to “disgorgement of ill-gotten gains” to

illustrate a “strictly remedial” measure without respect

for the consequences of disgorgement on the defendant.

Johnson 87 F.3d at 491. Disgorgement is not mentioned

at all in Bartek. And the court in Commonwealth

Chemical seems to suggest that the effect of a

disgorgement order on a defendant is irrelevant to its

equitable nature. 574 F.2d at 96. The authorities cited

by Defendant actually seem consistent with the rule in

Telluride. Applying the Telluride rule, the Court finds

that the disgorgement sought by Plaintiff is remedial,

equitable, and thus, not subject to § 2462.

Defendant makes one final argument as to why

disgorgement amounts to a penalty. He states in his

Response (with no citation to authority) that an order

for disgorgement of funds paid to third parties, instead

of paid directly to Defendant, would constitute a

penalty. [Doc. 179] at 2. The implication is that

Defendant should not be ordered to disgorge funds that

were paid to landlords or other controlling persons to

whom Defendant was not related. See id. Plaintiff

43a

replies that the question is not what amount of illegally

obtained funds was received by Defendant but, rather,

what amount of illegally obtained funds was distributed

under Defendant’s control. [Doc. 181] at 11 (citing

United Amer. Ventures, 2012 U.S. Dist. LEXIS 51978,

at *16).

A “person who controls the distribution of illegally

obtained funds is liable for the funds he or she

dissipated as well as the funds he or she retained.”

United Amer. Ventures, 2012 U.S. Dist. LEXIS 51978,

*16 (quoting S.E.C. v. Platforms Wireless Int'l Corp.,

617 F.3d 1072, 1098 (9th Cir. 2010)). Moreover,

defendants “should not be allowed to deduct referral

fees, payroll, or other expenses from the net proceeds

to reduce their liability for ill-gotten gains, because it

would be ‘unjust to permit the defendants to offset

against investor dollars the expenses of running the

very business created to defraud those investors.” /d.

at *17 (quoting SEC v. JT Wallenbrock & Assocs., 440

F.3d 1109, 1114 (9th Cir. 2006) (ellipsis omitted). These

rules make sense considering that disgorgement is

designed both to prevent the wrongdoer’s unjust

enrichment and to deter others’ violations of the

securities laws, especially in cases of securities fraud.

See United States v. Nacchio, 573 F.3d 1062, 1080 (10th

Cir. 2009).

Defendant’s argument—that any disgorgement of

monies that he distributed to third parties would not be

equitable—holds water only on the most superficial

review. The Court is persuaded that all of the funds

misappropriated by Defendant should be disgorged.

Requiring Defendant to give up his _ ill-gotten

44a

gains—even those he received many years ago and

those he caused to be paid to third parties—is

quintessentially equitable. The requested disgorgement

is for the precise damage caused by Defendant’s acts

and, thus, does not amount to a penalty. Therefore, the

limitations period in § 2462 does not apply to the

request for disgorgement.

b. Disgorgement in the amount of

$34,927,329 is appropriate.

Although disgorgement does not amount to a

penalty in this case and is not barred by the statute of

limitations, the Court must still evaluate whether and

what amount of disgorgement is appropriate. Plaintiff

argues that Defendant should be ordered to disgorge

all of the profits causally connected to his violations.

[Doc. 176] at 8 (citing First Pacific Bancorp, 142 F.3d

at 1192 n.6.). Plaintiff contends that such order would

total $34,927,329. Id.

Disgorgement is “an equitable remedy as to which a

trial court is vested with broad discretionary powers.”

SEC v. Mazxzxon, Inc., 465 F.3d 1174, 1179 (10th Cir.

2006). When the Court is calculating the proper amount

of disgorgement for violation of securities laws, it need

not make “an exact calculation of the defendant’s

profits, but only a reasonable approximation of profits

causally connected to the violation. Because such

calculations are not capable of exactitude, any risk of

uncertainty in calculating disgorgement should fall on

the wrongdoer whose illegal conduct created that

uncertainty.” S.E.C. v. Haligiannis, 470 F. Supp. 2d

373, 384 (S.D.N.Y. 2007) (internal quotations and

modifications omitted); see SEC v. Fisher, 2008 US

45a

Dist. LEXIS 37838, at *25 (N.D. Ill. May 13, 2008)

(unpublished) (holding that disgorgement of all

ill-gotten gains would be available if the SEC “prove[d]

that its disgorgement figure reasonably approximate[d|

the amount of unjust enrichment”)).

In this case, the Court is satisfied that $34,927,329

reasonably approximates the ill-gotten gains causally

connected to Defendant’s violations. Indeed, Defendant

does not argue otherwise. He argues that portions of

the amount should not be ordered disgorged for other

reasons, which have already been addressed above.

However, he does not dispute the calculation. The

Court will order Defendant to disgorge $34,927,329,

plus prejudgment interest of $18,077, 103.37.

III. CONCLUSION

The statute of limitations at 15 U.S.C. § 2462 applies

to the civil money penalty and, thus, limits the total

amount of penalty the Court may impose. However,

because some of the claims first accrued within the

limitations period, § 2462 does not bar a civil money

penalty in its entirety. In light of the facts and

circumstances, the Court finds that a third-tier, civil

money penalty should be imposed against Defendant in

the amount of $2,354,593.

The Court further finds that neither injunction nor

disgorgement, as Plaintiff requests, amounts to a

“penalty” in this case because neither is unrelated to, or

in excess, of the damages caused by Defendant. In fact,

they are tailored to the injury caused by Defendant.

Therefore, neither injunction nor disgorgement is

subject to the statute of limitations at § 2462.

46a

There is a reasonable and substantial likelihood that

Defendant, if not enjoined, will violate securities jaws

in the future. Accordingly, he will be permanently

enjoined from violating the securities laws. Finally, the

Court determines that $34,927,329 reasonably

approximates the ill-gotten gains causally connected to

Defendant's violations and wil] order him to disgorge

that amount plus'- prejudgment interest of

$18,077,103.37.

IT IS THEREFORE ORDERED, ADJUDGED,

AND DECREED that Plaintiff's Motion for Entry of

Final Judgment against Defendant Charles R. Kokesh

(Doc. 176] is GRANTED.

IT IS FURTHER ORDERED that Defendant

shall pay a civil penalty in the amount of $2,354,593

pursuant to Section 21(d) of the Exchange Act, Section

209(e) of the Advisers Act, and Section 42(e) of the

Investment Company Act, 15 US.C. §$§& 7S8u(d);

80b-9(e), and 80a-41(e), within 30 days of entry of this

Order.

IT IS FURTHER ORDERED that a permanent

injunction will issue enjoining Defendant from violating

Section 206(1) and (2) of the Investment Advisers Act;

Section 13(a) of the Exchange Act and Exchange Act

Rules 12b-20, 13a-1, and 13a-13; Section 14(a) of the

Exchange Act and Exchange Act Rule 14a-9; Section 37

of the Investment Company Act, and Section 205(a) of

the Investment Advisers Act, directly or indirectly.

Alva

IT IS FURTHER ORDERED that Defendant

shall disgorge $34,927,329, together with prejudgment

interest thereon in the amount of $18,077,103.37, within

30 days of entry of this Order.

IT IS SO ORDERED.

cm /s/ bad

STEPHAN M. VIDMAR

United States Magistrate Judge

Presiding by Consent

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.